Germany To Expand Occupational Pension Coverage [UPDATED]

The German government introduced an occupational pension reform proposal aimed at making the existing voluntary occupational pension model more flexible and increasing workforce participation by expanding access to the social partner model, among other changes.

Update: The Second Act to Strengthen Occupational Pensions and to Amend Other Laws (the “Act”) was passed by the Bundesrat on 19 December 2025. Most provisions took effect on 22 January 2026, with some provisions to apply at later dates. This article has been updated to reflect this development.

Background

The Act was published in the Federal Law Gazette on 21 January 2026 and entered into force on 22 January 2026. Most provisions took effect on 22 January 2026, with other provisions to apply at later dates.

Key details

The most relevant changes introduced by the Act are as follows:

Social Partner Model

One of the main goals of the Act is to enable third-party companies—those not currently bound by an industry collective agreement—to participate in the “pure defined contribution” plan model previously reserved to companies participating in a Social Partner Model (Sozialpartnermodell, SPM). Unlike other occupational pension plan models which require an underlying investment guarantee of a return of contributions, SPM plans only require employers to be liable for their contribution payments and not a fixed minimum amount.

From 22 January 2026, the Act has expanded access to smaller employers not bound by any specific collective agreement. However, their participation in an SPM is subject to final approval of the SPM managing parties and may require contribution toward the SPM’s operating costs.

Automatic participation with opt-out

Before the reform, automatic participation in deferred compensation plans was only possible where a collective agreement provided for it and the employer contributed at least 15% of the employee deferral.

From 22 January 2026, employers may establish auto-enrolled deferred compensation plans provided that:

• The employer contribution is at least 20% of the employee deferral.

• Employees can opt out.

• The plan is based on an agreement with the company’s elected works council or staff council.

However, automatic participation has not been made available to companies that do not have an elected works or staff council. In these cases, only employee opt-in deferral arrangements remain available.

Tax subsidy for lower-income earners

Currently, employers can only claim the government tax subsidy for occupational pension contributions for employees with a gross income of less than EUR 2,575 euros per month.

From 1 January 2027, this fixed income limit will change to a dynamic income limit of 3% of the annual contribution assessment ceiling for statutory pension insurance (equivalent to EUR 3,042 per month in 2026, based on the 2026 annual contribution assessment ceiling of EUR 101,400). The intent of this change is to maintain eligibility for lower-income earners even as wages rise over time.

Additionally, the subsidy currently only applies to employer contributions between EUR 240 to EUR 960 per year. From 1 January 2027, the maximum employer contribution threshold will change to EUR 1,200 per year and the maximum subsidy amount will increase from EUR 288 to EUR 360 per year.

The minimum threshold of EUR 240 and the tax subsidy rate of 30% of the employer’s contribution will remain unchanged.

Severance pay

Employers may make a one-time severance payment to settle a departing employee’s small occupational pension entitlement, but only when the monthly amount of the benefit from the entitlement does not exceed a statutory maximum amount.

The severance payment may be made by the employer without the employee’s consent. The Act has increased the maximum amount permitted for this from 1% to 1.5% of the monthly reference amount under Section 18 of Social Code Book Four (SGB IV) (the monthly reference amount is EUR 3,955 in 2026). If the employee provides consent and the employer pays the severance directly into the statutory federal pension scheme, a higher limit of 2% applies, increased from 1%. These changes took effect from 22 January 2026.

This mechanism is intended to reduce administrative burden for employers and pension providers, as very small pension pots can be disproportionately expensive to administer.

Pension payment modalities

Pension funds (Pensionfonds) were previously only allowed to pay out pension benefits as a lump sum or an annuity. Effective 22 January 2026, pension funds have the additional option to pay out benefits in installments, subject to conditions set out in the revised Section 236 of the Insurance Supervision Act (opens a new window) (VAG). The determination of such installments is regulated by the revised Chapter 7 of the Pension Fund Supervision Ordinance (opens a new window) (PFAV).

Continuation of life insurance after an employment period without remuneration

Under direct insurance occupational pension plans, employers take out a life insurance contract with a guaranteed rate through an insurance company.

On 1 July 2026, the revised Section 212 of the Insurance Contract Act (VVG) as introduced by the Act will take effect, making it possible to resume employer-sponsored life insurance after any employment period without remuneration. Currently, resumption is only permitted after parental leave.

Early retirement requests

From 1 January 2027, early payouts of occupational pension benefits for early claimants will be permitted even if they are only receiving a partial state retirement pension. Currently, such early payouts are only permitted if claimants are receiving a full state pension.

Employer action: ACT

Employers should review their existing voluntary occupational pension plans (if any) to ensure compliance with the changes and assess if they should make any adjustments. Employers may wish to consider the pros and cons of an automatic participation model for deferred compensation plans or whether to participate in an SPM should that option become available to them.

Please contact Ty Thurmond, VP, Senior Consultant, Global People Solutions at ty.thurmond@lockton.com (opens a new window), or your Lockton Consultant, if you wish to discuss these changes.

Written in collaboration with:

Laura Kahl

Consultant, Legal Affairs, Funk Vorsorgeberatung GmbH

l.kahl@funk-gruppe.de (opens a new window)

Further Information

Second Act to Strengthen Occupational Pensions and to Amend Other Laws | Federal Law Gazette (opens a new window)

FAQ – Second Act to Strengthen Occupational Pensions | BMAS (opens a new window)