Company Pension Strengthening Act II – The most important changes
Changes as of January 1, 2026:
1. Increase in Severance Payment Limits for Entitlements from Company Pension Schemes
As of January 1, 2026, employers can settle entitlements without the employee’s consent if they do not exceed the following limits:
- For pensions: 1.5% of the monthly reference amount according to Section 18 of Book IV of the Social Code (SGB IV) (€59.33 monthly pension in 2026)
- For lump sum payments: 18/10 of the monthly reference amount according to Section 18 of Book IV of the Social Code (SGB IV) (€7,119.00 lump-sum payment in 2026)
With the employee’s consent, the limits increase to 2% for pensions and 24/10 for lump sum payments, provided that the settlement amount is paid directly into the statutory pension scheme.
2. Expanding the Social Partner Models
Existing social partner models can also be used more easily in future by employers and employees who are not bound by collective agreements. The German government’s goal is to double the number of employees participating in a social partner model by 2027.
3. Easier Introduction of Opt-Out Models for Deferred Compensation
Opt-out models can also be introduced in future without a collective agreement basis through a works or service agreement. The prerequisite is that the remuneration entitlements to be converted are not or not usually regulated in a relevant collective agreement and that the employer pays a subsidy of at least 20%.
Changes as of July 1, 2026:
4. Continuation of Life Insurance Policies After Periods without Pay
Deferred compensation via direct insurance or a pension fund is often continued without contributions during periods without pay. In future, employees will be able to request the continuation of the contract under the original conditions not only after parental leave, but after all periods without pay.
Changes as of January 1, 2027:
5. Early Retirement Pension Also Possible with Partial Pension
In future, it will also be possible to claim benefits from the company pension scheme early, if no full pension is received from the statutory pension insurance scheme. Instead, a partial pension will also be sufficient in the future.
6. Changes to Low-Income Support
The maximum tax-free employer contribution to support low-income earners will be increased to €1,200 per year. In addition, the income limit up to which the subsidy is granted will be adjusted to 3% of the contribution assessment ceiling in the statutory pension insurance scheme.
For Profion customers, limited regulations are likely to be relevant in practice, and if they are, it will likely concern the regulations under points1, 3 and 5.
Please contact us if you require further information!
Current Company Pension Case Law:
Federal Labor Court Ruling 3 AZR 158/24 and Its Background
Unresolved issues regarding employer contributions under Section 1a (1a) of the German Company Pensions Act (BetrAVG) have already been the subject of several supreme court rulings. According to this provision, employers are obliged to subsidize deferred compensation in company pension schemes by 15% if they save social security contributions because of deferred compensation. The subsidy obligation only applies if the scheme is implemented via pension funds, pension schemes, and direct insurance policies. While in the past the Federal Labor Court (BAG) primarily ruled on questions relating to the negotiability of collective agreements, it has now ruled on the question of whether other employer benefits can already fulfill the subsidy obligation.
In the opinion of the BAG, the only thing that matters is that, in the case of monetary debt, the obligation is fulfilled by the actual transfer to the direct insurance policy. The claim is then fulfilled as an objective consequence of the provision of the benefit. The BAG focuses solely on this objective effect of fulfillment and disregards the specific circumstances of the case (contractual reclassification of a claim to capital-forming benefits).
However, the BAG explicitly left open the question of whether the employer could also have fulfilled its subsidy obligation under Section 1a (1a) BetrAVG by paying a capital-forming benefit. It therefore remains to be seen how case law will develop in the future as to whether and, if so, under what conditions other benefits provided by the employer can be “credited” against the entitlement under section 1a (1a) of the BetrAVG.
The Impact of the Pay Transparency Directive (EU Directive 2023/970 of May 10, 2023) on Company Pension Schemes
Does gender pay gap equal pension gap? If there are gaps during working life, there will also be gaps in retirement. The implementation of the European Pay Transparency Directive into national law will give new impetus to the current German Pay Transparency Act. From 2027, all companies with 150 or more employees will be subject to extensive reporting and disclosure requirements regarding average pay levels by gender. This includes all benefits, in particular company pension schemes.
The aim is to strengthen the principle of equal pay, for example through disclosure and information requirements as well as enforcement through claims for damages and procedural sanctions.
What does pay transparency mean in relation to company pension schemes?
If the employer pays contributions to an external pension provider and the latter assumes full responsibility for the payment of future benefits, these contributions must be included in the total remuneration. This effectively affects all external implementation channels (direct insurance/pension fund/pension scheme) where the employer has a theoretical obligation to make additional contributions. For all defined contribution commitments, it can therefore be assumed that the calculation of contributions is sufficient. These contributions are then included in the general salary comparison.
