The details that trip people up in practice.
This page is for brokers, HR managers and anyone who wants it exact. All figures are based on the 2026 social security contribution ceiling: €8,450 per month in the state pension scheme — uniform across the whole of Germany since 2026.
The five funding routes
The question is not "which one is best" but "which one fits the type of commitment, the contribution level and what you want on your balance sheet".
Direct insurance (Direktversicherung) § 3 no. 63 EStG · insurance-based
The employer takes out the policy; the insured person is the employee. The most common route — lean, balance-sheet neutral, portable everywhere.
- Tax-free
- up to 8 % of the ceiling = €8,112 p.a. / €676 per month (2026)
- Free of social security
- up to 4 % of the ceiling = €4,056 p.a. / €338 per month
- Payout phase
- deferred taxation as other income (§ 22 no. 5 EStG); in the statutory health scheme generally a contributory pension benefit (§ 229 SGB V) with an allowance
- Insolvency protection
- no PSVaG obligation, as long as the policy is neither pledged nor assigned
Pensionskasse § 3 no. 63 EStG · supervised by BaFin
A legally independent pension institution. Treated for tax purposes like direct insurance.
- Thresholds
- identical to direct insurance: 8 % tax-free, 4 % free of social security
- Particular feature
- the employer's subsidiary liability under § 1(1) sentence 3 BetrAVG — it stands behind the commitment even if the institution reduces benefits
- Practical relevance
- legacy portfolios with guaranteed interest; look closely at restructuring cases
Pensionsfonds § 3 no. 63 EStG · freer investment rules
Like a Pensionskasse, but with considerably more investment latitude and without a guarantee obligation of the same severity.
- Thresholds
- 8 % tax-free, 4 % free of social security
- Insolvency protection
- subject to PSVaG
- Typical use
- transferring existing book reserve commitments (past service)
Unterstützungskasse (support fund) § 4d EStG · for high contributions
The route above the § 3 no. 63 threshold: during the accrual phase no employment income accrues to the employee, so the tax-free endowment is not capped at 8 % of the ceiling.
- Tax
- no accrual during the vesting phase; benefits later taxed in full as employment income (§ 19 EStG)
- Social security on deferred compensation
- likewise free only up to 4 % of the ceiling (§ 1(1) sentence 1 no. 9 SvEV) — the most common misconception in the market
- Insolvency protection
- subject to PSVaG
- Combination
- direct insurance and support fund side by side: 4 % of the ceiling free of social security per route, so up to €676 per month together
Book reserve scheme (Direktzusage) § 6a EStG · on the balance sheet
The employer promises the benefit itself and builds provisions. No external provider, but it touches the balance sheet and requires actuarial opinions.
- Tax
- provision under § 6a EStG; no accrual to the employee during the vesting phase
- Social security on deferred compensation
- free only up to 4 % of the ceiling — not "entirely free of social security"
- Insolvency protection
- subject to PSVaG
- Typical use
- provision for directors and senior management
The thresholds apply including the employer match
The mandatory 15 % match is an employer contribution within the meaning of § 3 no. 63 EStG. It consumes the allowance — it does not come on top. Anyone who measures the threshold against the converted salary alone breaches it without noticing.
How the platform calculates
Tax: 8 % of the ceiling (€676 per month) against all employer
contributions to the direct insurance, match included.
Social security: 4 % of the ceiling (€338 per month) per funding route
against the total contribution including the match. The portion of the
conversion that is free of social security is therefore €338 minus the match
sitting in that route.
Allocation: the match follows the conversion that triggers it
(§ 1a(1a) BetrAVG) — pro rata where the contribution is split.
A worked example
An employer matching 50 %, capped at €100. The goal: the social security sweet spot at 4 % of the ceiling.
Not €338 converted plus a €100 match — that would be €438 and therefore €100 above the social security threshold.
A calculation engine, not a percentage calculator
Sweet spots
The contribution levels with the best subsidy ratio at 4 % and 8 % of the ceiling — always calculated from the stored reference data, never hard-wired.
Split across two routes
Contribution up to 4 % of the ceiling into the direct insurance, the remainder into the support fund — manually overridable, with the total held constant.
Support fund switch
The support fund only comes into play when the desired contribution exceeds the 8 % threshold and the net cost actually falls as a result.
Net cost
What the employee really has less of in the bank — including tax class, church tax, child allowances and the health insurer's supplementary rate.
This logic is covered by tests and documented. That is the difference between advice that stands up afterwards and a spreadsheet nobody can recalculate.
Subsidies, duties, deadlines
Employer match
At least 15 % of the converted amount, to the extent the employer saves social security contributions (§ 1a(1a) BetrAVG) — since 2019 for new commitments and since 2022 for all of them. Many employers voluntarily add more; that is the lever for employer attractiveness.
Subsidy for low earners
§ 100 EStG: for employees below the income threshold, the state subsidises an additional, purely employer-funded contribution with a 30 % subsidy, offset through the payroll tax return. The most overlooked building block in the German Mittelstand.
Vesting
Entitlements funded from deferred compensation vest immediately. For employer-funded commitments the periods in § 1b BetrAVG apply.
Portability when changing jobs
§ 4 BetrAVG: a right of transfer for insurance-based routes within one year of leaving. In practice it rarely fails on the law and almost always on nobody watching the deadline — the system does.
What does converting salary really cost me?
With the logic that actually matters: the employer match consumes the allowances too. Move the sliders and watch where the thresholds tip.
Your inputs
Result
Corporate health care
The benefit with the highest perceived impact per euro invested — and with a tax logic you need to know.
Benefit in kind or cash
If the employer promises insurance cover, that is a benefit in kind and the monthly exemption limit applies. If it pays a sum of money to be used for that purpose, it is cash pay and fully taxable. The wording of the commitment decides the tax burden.
Flat-rate taxation
Alternatively the employer can tax at a flat rate under § 37b EStG — sensible for higher-value plans above the exemption limit.
Budget rather than modules
An annual health budget that employees spend themselves is, in our experience, noticed far more than a modular plan whose benefits nobody can recite.
Whoever enables a career break has to think about the pension too
Sabbatical, parental leave, long-term sickness, maternity protection: in all of these phases little or no pay flows — but the contracts keep running. Without a system, this is exactly where the gaps arise that surface years later.
In the product today
Employees carry a status with a reason and a period — sabbatical, parental leave, maternity protection, long-term sickness — with a complete history of who changed what and when. Contributions and contract status are steered accordingly rather than forgotten, and the status feeds into the payroll export and the analyses.
Time-value accounts
The actual digital sabbatical solution: employees save pay, overtime or holiday into a value credit and use it to fund paid leave — a sabbatical, early retirement, care leave or extended parental leave.
- Legal framework
- value credit agreement under § 7b SGB IV
- Insolvency protection
- mandatory under § 7e SGB IV
- Portability
- transfer to a new employer or to the German state pension insurer under § 7f SGB IV
- Tax & social security
- income accrues only in the leave phase — and so does the contribution liability
- Limitation
- not available to company officers such as managing directors of a GmbH
Status, plainly: the module is in development and not yet in the product. Anyone registering a need now helps determine the order in which it is built out.
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