Many employees in Germany leave a three-digit sum on the table every year, and they do so completely voluntarily. The reason is usually not lack of interest, but a mixture of ignorance and the feeling that the bureaucratic effort does not justify the return. We’re talking about them Capital-forming benefits (VL). This is one of the easiest ways to build up a private cushion without sacrificing your own net income.
The hurdles of self-implementation: bureaucracy and stress
Imagine if your employer gave you 40 euros in cash every month, on the sole condition that you don’t immediately spend it on consumption. Would you refuse? Probably not. But that’s exactly what happens to millions of employees. According to estimates, only about one in two people use the VL entitlement.
The problem often lies in history, because for a long time VLs were closely linked to the classic building savings contract or the less lucrative bank savings plan. In a period of low interest rates (or with inflation that exceeds the meager interest rates), fees and loss of purchasing power often eat away at the benefit of these contracts. Anyone who wants to build wealth today has to follow the logic of… Asset allocationi.e. the strategic distribution of capital across different asset classes, can also be applied to its VL.
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The facts: How VLs work today
The law stipulates that employers can pay their employees up to 480 euros per year (equivalent to 40 euros per month) in addition to your salary, provided that this money goes into a qualified form of investment. Depending on the collective agreement or individual agreement, the boss covers the full amount or part of it. This is the ideal entry point, especially for trainees who are often receiving their own salary for the first time. The VL start at OSCAR2 enables young people to have a low-risk initial contact with the world of stocks without putting a strain on their own budget.
| 💡Especially relevant for public services What many people don’t know is that civil servants, judges and soldiers are generally also entitled to capital-forming benefits. Since the amounts are often fixed in public services, automated creation using a robo-advisor like OSKAR is particularly worthwhile. Even for smaller amounts, the professional ETF structure ensures that the allowances are not eaten up by high custody fees, as is often the case with classic banking products. In this way, a seemingly small allowance becomes an impressive private pension plan over the years of service. |
In addition, there are for employees under certain income limits Employee savings allowance. For example, if you are a single person and have a taxable income of less than 40,000 euros (80,000 euros for married couples), you will receive a 20 percent subsidy from the state on the contributions paid when you save in stock funds. That’s up to an additional 80 euros per year.
| feature | Funding for ETF investments |
| Amount of funding | 20% on a maximum deposit of €400 per year |
| Max. bonus from the state | €80 per year (€160 for joint assessment) |
| Income limit (new) | up to €40,000 (single) / €80,000 (married) |
Notice: The decisive factor is the taxable income, which is usually well below the gross salary.
The classic cycle of a VL contract includes a six-year deposit phase, followed by a one-year lock-up period, after which the capital can be freely disposed of.
| 💡Calculation example: The power of 40 euros Anyone who receives the full employer contribution from 40 euros per month over a working life of 40 years consistently invests in a globally diversified ETF portfolio, achieving an average market return of 7% pa a final capital of around 103,000 euros. The impressive thing is that this six-figure amount is created without giving up a single euro of your own net income (as long as your boss covers the full amount). |
At a glance: Where are VLs most worthwhile?
| criterion | Building savings contract / bank savings plan | ETF-based asset management |
| Opportunity for return | Very low (usually under inflation) | High (historically approx. 7% pa for world portfolio) |
| Cost | Closing fees & account management fees | Low percentage management fee |
| flexibility | Rigid, often tied to residential purposes | High, freely available after 7 years |
| Inflation protection | No (cash investment) | Yes (investment of tangible assets in companies) |
Why implementation often fails
Although the benefits are obvious, many workers shy away from manual setup. A VL depot at a branch bank is often expensive, the selection of funds is limited or burdened with high issuing surcharges and costs. Anyone who tries to solve the whole thing using a standard depot will quickly realize that it doesn’t work. VL contributions must be paid directly by the employer to a special account certified for these purposes.
This is where the wheat is separated from the chaff. Anyone who is interested in the high-yield ETF savings decides, must normally fulfill documentation obligations towards the tax office and ensure that the securities account management complies with the special VL rules.
At this point, modern digital solutions such as: OSCAR2 a decisive advantage. OSKAR acts as a reference for modern processing because instead of having to deal with complicated forms for the HR department, the platform generates a ready-made employer certificate including a dedicated one IBAN logic. The employee simply has to forward it. The rest, from professional portfolio compilation to automatic Rebalancing (restoring the original risk weighting), the system takes over.
Strategic wealth creation: Why ETFs are the first choice
About the Compound interest effect To make maximum use of it, there is no way around material assets. While building savings contracts often only compensate for inflation, globally diversified ETFs enable you to participate in global economic growth.
An intelligent VL approach should focus on the following factors:
- Diversification: Instead of relying on individual stocks, capital should be spread across hundreds or thousands of companies worldwide
- Accumulation: Income such as dividends are reinvested directly. This massively accelerates the growth of capital, as the reinvested profits also generate returns next year
- ESG criteria: Many investors value sustainability (environmental, social, and governance). A contemporary VL product should already have these filters integrated
The highlight of a modern provider like OSKAR is that the VL are not viewed in isolation: the capital flows into a professionally managed strategy that prioritizes tangible assets and thus offers natural protection against inflation.
Particularly smart for families: Since OSKAR bundles all of the family’s portfolios, from your own VL account to the children’s savings plan, in one app, you have a full overview of the entire wealth accumulation. After the blocking period has expired, the VL income can be planned specifically as a building block for the children’s future, without you losing track of the jungle of forms.
The tax component and documentation
An often underestimated point is tax treatment. Your employer’s VL contributions are considered taxable wages. Nevertheless, the model is almost always worthwhile because the potential returns and government subsidies far outweigh the tax burden.
| 💡Important for practice You don’t have to be a tax expert to use VL. The contributions are offset and the taxes and social security contributions due are transferred to the employer contribution fully automatically via your monthly payroll. Your net income is only reduced by a minimal fraction, while the full amount works for you in your VL account. |
In the past, the annual certificate was a bureaucratic obstacle for the tax office. Digital solutions now fully automate this process. The data is transmitted electronically to the tax authorities, which reduces the manual effort for you to almost zero.
Conclusion: Time savings as a return boost
Capital-forming benefits are not a relic of the past, but rather, when implemented correctly, are a turbocharger for long-term wealth creation. Anyone who ignores the 40 euros a month will miss out on a mid-five-figure amount over the course of their working life, simply through contributions from their boss and the power of the market.
The previous hurdle of complexity of processing is being overcome by specialized providers such as OSCAR2 virtually eliminated and entry into the capital market is therefore lower than ever before. Anyone who doesn’t let their boss work their money in an ETF-based system is not only giving away the monthly deposit, but also the chance to build up a considerable cushion for the future without any effort of their own. It is probably the easiest way to take advantage of the advantages of the capital market, secure, automated and completely stress-free.
Frequently asked questions about capital-forming benefits (FAQ)
- What happens if you change employer? Your existing VL contract will remain intact. You simply tell your new boss the bank details of your VL deposit so that he can continue the payments. If the new employer doesn’t pay VL, you can leave the contract on hold or continue saving privately.
- Can self-employed people or freelancers also use VL? No, VLs are a privilege for employees, trainees, civil servants and judges. However, self-employed people can invest privately in the same ETF portfolios to benefit from professional asset management, even without the government-sponsored VL framework.
- Is there a minimum term? Yes, the statutory blocking period is usually seven years (six years of payment, one year of rest). You can then freely use the capital or simply keep it invested in order to take advantage of the market’s return opportunities for longer.
- Do I have to apply for the employee savings allowance myself? Yes, this is easily done via your annual income tax return. Modern depository providers transmit the necessary data electronically to the tax office, so all you have to do is put a tick in the right place.
- Can I also invest VL in sustainable ETFs? Yes, this is actually the standard for modern providers. OSKAR, for example, uses investment strategies that take strict ESG (environmental, social, governance) criteria into account. In this way, you not only invest with high returns, but also responsibly in the future.
Open OSKAR ETF SPARPLAN now
Start building your wealth now OSCAR – the simple ETF savings plan.
Over 150,000 customers are already investing with OSKAR. You can do that too.
2Note: Oskar is a brand of Oskar.de GmbH, a spin-off of finanzen.net GmbH. Scalable Capital Vermögensverwaltung GmbH manages the assets, Baader Bank AG manages the securities accounts with clearing accounts. Further information can be found here.