Short answer
You give up part of your gross salary and your employer pays it into an eligible direct-insurance, Pensionskasse or Pensionsfonds pathway. In 2026 the first 4,056 euro a year is free of both income tax and social contributions, and a further amount up to 8,112 euro is free of tax only. In retirement the payout is taxed in full and, for a compulsorily insured statutory-health member, can carry health and care contributions subject to their different allowance and threshold rules.Workplace pension, as a mechanism Germany
How does converting salary into a workplace pension work?
Every employee has the right to convert part of their salary into a pension contract. This page describes what that does, in both directions.| In 2026 | Free of income tax | Free of social contributions |
|---|---|---|
| Up to 4,056 euro a year | Yes | Yes |
| From 4,056 to 8,112 euro | Yes | No |
| Above 8,112 euro | No | No |
Four and eight percent of the contribution ceiling, which is reset each January for the named implementation routes. Later tax and statutory health/care treatment depends on the payout and insurance status, not on which contribution row it came from.
On the way in
Converted salary of up to four percent of the contribution ceiling - 4,056 euro in 2026 - can be free of income tax and social contributions. A second four percent, taking the total to 8,112 euro, can be free of income tax only. These 8 and 4 percent limits apply to Direktversicherung, Pensionskasse and Pensionsfonds; other implementation routes can follow different rules. The employee conversion right itself is limited to 4 percent.
Where the conversion actually saves the employer social contributions, the statutory top-up is 15 percent of the converted amount but cannot exceed the employer's saving. Many employers add more than that; some schemes are funded by the employer entirely, which is a different arrangement from the one described here.
On the way out
The payout is taxed in full as income. It also carries health and long-term care contributions at the full rate - both halves, unlike a state pension, where the Rentenversicherung pays half of the health contribution.
There is a health-insurance allowance: in 2026 the first 197.75 euro a month of qualifying workplace-pension income carries no health contribution. Long-term care uses a threshold instead: once the qualifying total exceeds it, care contributions apply to the full qualifying amount, not only the excess.
The part that is not on the payslip
Converted salary is salary you did not receive, so no contributions were paid to the statutory scheme on it. That lowers the Entgeltpunkte you earn, and therefore lowers the state pension the conversion sits on top of.
The same applies to anything else calculated from gross pay while you are working: unemployment benefit, sick pay and parental allowance are all measured against a smaller figure.
What this page does not tell you
Workplace schemes differ in form, in who bears the investment risk, in what happens when you change employer, and in what the employer contributes. Those terms decide the outcome and are specific to your employer's arrangement.