Day 3: Corporate retirement plans – additional retirement through your employer

Corporate retirement plans are another means of securing your financial future. The employer is obliged to comply with the request for deferred compensation. The term “deferred compensation” is used because a portion of the gross salary is converted into a retirement plan. Government subsidies and tax breaks make corporate retirement plans an attractive option. It works on the principle that you make a contribution out of your gross monthly salary (usually 3-15%), and your employer does likewise (usually also 15%). The amount of the contributions depends on what kind of corporate retirement plan it is.

In Germany, there are five different types of corporate retirement plans.

Companies can decide for themselves which investment form, or which implementation path, it offers its employees:

Direct commitment

Also called a pension commitment, the employer promises to make future pension payments to the employee.

Direct insurance

The employer takes out a life-and-pension insurance policy for the employee. The pension is then paid out by the life insurance company.

Pension plan

Some companies (usually the larger ones) have their own pension funds, which pay benefits to employees upon retirement.

Pension fund

The employer pays contributions into a pension fund operated by an association specializing in corporate retirement plans. The association then pays the employee’s pension.

Pension scheme

Here too, the company establishes its own pension fund. The main difference is that, in contrast to the other systems, a large proportion of the contributions gets invested in stocks and securities.

Tip: Contact your employer’s HR department and ask what kind of corporate retirement plan the company offers, including what the terms are. Find out where your money is going (i.e., what exactly the company is doing with it). What are the fees? What terms apply when you change jobs or retire? If you already have a corporate retirement plan but don’t know how it works or what opportunities it offers, you should pose these questions to HR as well.