The deferred compensation, also referred to as salary conversion, is a process of company pension scheme (BAV), in which employees convert part of their gross salary into pension benefits. This means that an agreed share of the salary is not paid directly, but is paid into a company pension scheme.
Due to the method of deferred compensation, employees can provide for age during their working life and benefit from tax advantages.
Fee conversion – what is it?
A severance payment can initially appear like a financial blessing for employees after termination. But the joy can be clouded quickly if the tax load is higher than expected. Fortunately, the so -called fifth regulation offers a way to reduce the tax burden.
How the deferred compensation works
In the case of deferred compensation, the employee dispenses with part of his gross salary, which instead flows into a company pension scheme. This amount is free of tax and social security levies up to a certain limit. For the year 2025, up to 644 euros per month can be paid into the BAV with tax-free and up to 322 euros free of social security, as reported by an online contribution from Finanztip. These contributions are deducted directly from the gross content, which reduces the taxable income.
Legal claim and employer grant
Employees in Germany have had a legal right to conversion since 2002. This means that you can ask for part of your salary to be used for company pension schemes. In addition, employers have been obliged to pay a grant of at least 15 percent of the converted fee since 2019, provided that they save social security contributions through the deferred compensation. This regulation has also been valid for existing BAV contracts since 2022.
Implementation routes of company pension scheme
The company pension scheme can be realized via various ways, including direct insurance, pension fund, pension fund, support fund and direct commitment. Direkt insurance is often used for deferred compensation, in which the employer takes out life or pension insurance for the employee, Finanztip continues. The choice of the implementing route can have an impact on the specific conditions and benefits of old -age provision.
Advantages of deferred compensation
The deferred compensation offers several advantages:
• Tax and social security savings: Due to the deposit to the BAV, the taxable income is reduced, which leads to a lower tax burden. In addition, there are no social security levies up to certain contribution limits.
• Employer subsidy: The mandatory employer grant of at least 15 percent increases the savings fee and thus the later pension.
• Building an additional pension: BAV complements the statutory pension and helps to close the supply gap in old age.
Disadvantages and points to be observed
Despite the advantages mentioned, possible disadvantages should also be taken into account:
• Reduced statutory pension claims: Due to the lower deposits in the statutory pension insurance, the later pension claims can easily decrease.
• Taxation in the payment phase: The services from the BAV are subject to tax and social security contributions.
• Binding to the employer: When changing employers, it must be checked whether and how the BAV can be continued.
It is therefore advisable to get comprehensive advice before the conclusion of a deferred compensation agreement and to weigh the individual advantages and disadvantages, as the consumer advice center finally reports in an online contribution.
D. Maier / Redaktion Finanzen.net