How to Cancel Your German Company Pension Plan
Table Of Contents
Reasons why you might want to cancel your company pension plan
Of the 8,69 million direct company pension contracts in Germany (known as "betriebliche Altersvorsorge" or "bAV"), very few are worthwhile and make a real contribution to your retirement pension.
Why is that? Because of a simple calculation: Return = Performance - Costs + Benefits
While the tax benefits are high, there are major problems: the performance is often only 2-3 % instead of 8 %. The cost is 1,5-2 % if held for a long time, and about 20 % if held for less than 5 years. The benefits are not what they seem, as the so-called employer contribution would otherwise have gone to the public pension, and the public pension returns more.
So what does all this mean for you? In a nutshell: Contrary to popular belief and what many so-called experts tell you, it is not impossible to surrender your company pension plan. However, you can only do so if the value of the policy is below a certain threshold.
The sooner you stop, the better. Especially in the first five years, you pay very high upfront fees. Even if you have already paid these fees, it is seldom worthwhile to put in more money, as the bAV is simply poorly invested and you lose more in the public pension than you gain in the company pension.
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When can you cancel your occupational pension plan?
Here is why it is legally a bit complicated. First the law: The direct pension contract may be terminated if the so-called repurchase value (look out for the term "Rückkaufswert" in your contract) of the insurance is below the threshold known as the "Kleinstanwartschaft" (which means "small pension entitlement"). This amount is adjusted annually. In 2023 it will be 4.074 € in the western federal states and 3.948 € in the eastern federal states.
Second, your employer needs to consent: While working as an employee, you are the insurance beneficiary or the insured, but not a direct party to the contract and accordingly not entitled to terminate. Accordingly, in this constellation, you need your employer's consent to cancel the contract.
It is very difficult to force your employer to terminate the contract, this would have to be an extreme situation and would have to be enforced in court. But you can write a persuasive request. You can find a template for such a letter in the next paragraph.
If your employer consents to it, during an employment relationship the contract can be canceled, provided that the contract does not stipulate that it is prohibited to cancel it. Indeed some contracts stipulate that you cannot cancel them. Again no worries our form letter takes care of it.
An example termination clause
See below an example of an insurance contract. You can see that the actual contract states that the contract scheme can be terminated monthly. However, the value is only paid out if the regulations of the BetrAVG (the law that regulates company pension plans in Germany) allow this; hence only if the value is lower than the threshold.
Can I terminate my company pension plan if I change jobs?
Yes, you can. Upon termination of employment, you can have the contract transferred to yourself. In such a situation, you would then be entitled to terminate the contract in accordance with the terms of the contract.
If you start a new job, you can also ask your new employer to take over the contract, but it is up to the new employer to decide whether to do so. Often if they already have an existing company pension arrangement or so-called Betriebsvereinbarung they likely will not want to take over a previous contract. This often means that you have to start all over again and pay the high upfront costs.
You can also transfer the funds in your current contract to a new contract in certain situations. But as we discussed above, it rarely makes sense to do this.
Sample cancelation letters
Below you will find sample cancelation letters that you can use if you are still employed by the employer where you signed your bAV contract.
The letters first ask for the immediate termination and transfer of the fund, and if that is not possible, for the halting of contributions (called "Beitragsfreistellung" in German).
Sample cancelation letter if you are still working for the employer who concluded the contract on your behalf
Sample cancelation letter if you have switched employer
This sample cancelation letter can be used if the policy has been transferred to your name, e.g. after a change of job. If you have transferred the policy to your new employer, use the sample letter above.
Our conclusion on canceling your German company pension plan
It is often not possible to cancel the company pension if you have already accumulated too much money in your contract. In most other cases, you will need your employer's consent, unless you have left the job and taken over the contract yourself.
You can always stop making contributions, and this makes a lot of sense given the poor returns.
Use the sample cancelation letter we provide that aims to cancel the contract first, and if cancelation is no longer possible, use the other one to make the contract contribution-free.
As the public pension is unlikely to be enough to maintain a decent standard of living in retirement, you should consider saving elsewhere, such as by buying a home or through a private pension plan.
Please note: All of the above applies especially to the so-called "Direktversicherung", or "direct company pension plans", where you are individually insured. In addition, there are also so-called Pensionskasse and Pensionsfonds. Also in these cases, you can seek cancelation or a halt in contributions. But you should first evaluate whether the assets are well invested. Our standard advice on these kinds of contracts is: If it is invested in guaranteed products or largely in fixed-interest products like bonds, the return is unlikely to be good enough and cancelation probably makes the most sense. The exception is when you are already close to your retirement (say over the age of 55-60).
