Update 2025: Effects of the changes to the contribution assessment limits as of 1 January 2025 on company pension schemes

Increase in social security contribution assessment limits and their impact on occupational pension schemes

As of 1 January 2025, the contribution assessment limits for statutory health and pension insurance were raised by the Federal Ministry of Labour and Social Affairs in agreement with the Federal Council and adjusted in line with income trends to ensure social security. The new contribution assessment limits for pension and unemployment insurance will apply nationwide from 2025. The division into old and new federal states respectively in East and West is no longer continued. The existing contribution assessment thresholds in the social insurance schemes have been set at the following amounts:

This adjustment of the contribution assessment limits under social insurance law also has a direct and indirect effect on the area of occupational pension schemes, depending on the method of implementation:

• The increase in the contribution assessment limit for pension insurance also increases the tax-free maximum amount for employer contributions to a pension fund, direct insurance or a pension fund to build up a funded company pension scheme. According to Section 3 no. 63 sentence 1 EStG, the tax-free portion amounts to eight per cent of the contribution assessment limit for general pension insurance each year. The increase in the contribution assessment ceiling will result in a maximum tax-free amount of EUR 7,728 (= 8 % of EUR 96,600 ) in 2025. The increase in employer contributions can therefore be beneficial for both employees and employers.
• If parts of remuneration are used for a direct insurance or provident fund pension scheme through deferred compensation, they are not considered remuneration for social insurance purposes in accordance with Section 14 (1) sentence 2 SGB IV, provided they do not exceed 4% of the annual contribution assessment limit for general pension insurance. Consequently, the increase in the contribution assessment limit for pension insurance also leads to an increase in the social insurance-free contribution. In 2025, future pension beneficiaries will be able to pay in a maximum amount of EUR 3,864 (= 4% of EUR 96.600) free of social security contributions.
• The change in the proportion of contributions to a pension fund, pension fund or direct insurance that is exempt from social security contributions therefore also has an indirect effect on the amount of the mandatory employer contribution, as in the case of deferred compensation in favour of a funded company pension scheme in which contributions are paid to a pension fund, pension fund or direct insurance, the employer must pay an additional 15% of the converted salary as an employer contribution to the company pension scheme, insofar as this saves social security contributions (Section 1a (1a) BetrAVG).
• The above-mentioned changes may also have a direct impact on the amount of pension provisions in the case of salary-related pension commitments (in particular direct commitments) with a reference to the contribution assessment ceiling for pension insurance and/or in cases where social security pensions are taken into account (so-called total pension schemes). In most cases, however, these changes are already suitably taken into account in the calculation by the actuarial expert.
• Since the adjustment of the reference value (Section 18 SGB IV), small entitlements can be settled in accordance with Section 3 (2) BetrAVG if the monthly amount of the current benefit resulting from the entitlement would amount to a maximum of EUR 37,45/month if paid monthly.
• The increase in the contribution assessment limit may affect the group of eligibility for low-income earners' support under Section 100 of the Income Tax Act, as general wage increases may mean that fewer employees remain eligible for support.
   

Need for action? - When do you need to recalculate?

In most cases, there is a compelling need for action with regard to the adjustment of the mandatory employer contribution introduced in 2018 in the amount of 15 % of the remuneration converted by the employee in accordance with Section 1a (1a) BetrAVG. If the employer pays a higher subsidy limited to the contribution assessment ceiling, these contracts are also subject to adjustment unless they contain a dynamic offsetting clause - which is generally recommended in practice - with regard to the mandatory statutory subsidy in relation to the total subsidy promised in the contract. In this respect, the occupational pension commitments should be checked in particular for an existing dynamic increase in the employee's deferred compensation contributions.

The increase in social security and tax-free contributions should give rise to a review of the amount of employer contributions to the pension fund, direct insurance or a pension fund and, if necessary, readjustment taking into account the interests of the employer and employees.

Employers should also consider whether information materials, HR systems and digital portals on salary conversion need to be updated.
 

Authors: Elisa Ultsch, Benjamin Bauer und Daniele Sendler

Published: March 2025