HR-Glossar
Vermögenswirksame Leistungen (capital-forming payments)
What German capital-forming payments are, which investment forms qualify and how the state savings bonus fits alongside them.
1. What is Vermögenswirksame Leistungen (capital-forming payments)?
Capital-forming payments are payments of money by the employer that are not paid out but paid directly into a qualifying savings contract of the employee. They serve asset building.
Three points characterise them:
- They are employment income subject to tax and contributions (Section 19 EStG, Section 14 SGB IV). Unlike salary conversion there is no relief on payment in – the amount increases gross pay and contributions arise on it. - An entitlement exists only where it has been agreed – through a collective agreement, a works agreement or the employment contract. There is no statutory entitlement. - The state subsidy is a separate matter. The employee savings bonus is granted by the tax office, not by the employer, depends on the form of investment and on income limits, and is claimed through the tax return.
Employees can also save on this basis themselves where the employer pays nothing or less than the maximum – the employer then transfers the amount out of net pay.
The first of those three points is the one most often misread from outside: this is not a tax-favoured pension component.
2. Origin and development
Capital-forming payments come from the asset policy of the 1960s and 1970s. Their aim was to give employee households a share in productive capital – hence the subsidy specifically for building society saving and equity saving.
The amounts have not been raised substantially for a long time, so their significance measured against today's pay has fallen. In sectors covered by collective agreements they are nevertheless widespread and a natural part of the remuneration package.
3. Core principles and how it works
Direct transfer into the contract
The employer pays not to the employee but to the institution. That is a condition of the investment form.
Subject to tax and contributions
The amount increases gross pay. It is not tax-favoured provision.
An entitlement only from an agreement
A collective agreement, a works agreement or the employment contract. Without one there is none.
The savings bonus is a matter for the tax office
It is claimed through the tax return and depends on the form of investment and an income limit. The employer is not involved in it.
A lock-in period
Qualifying contracts have a minimum term. Disposing of the money early can cost the subsidy.
4. Who is Vermögenswirksame Leistungen (capital-forming payments) relevant for?
- Employees in sectors covered by collective agreements – the benefit is usually provided for there. - Employers – as a simple, inexpensive component of the remuneration package. - Payroll teams – setting up, transferring and certifying are ongoing work. - Employees with income below the subsidy limits – the savings bonus comes on top for them.
5. How it differs from related terms
- Capital-forming payments and salary conversion – conversion is favoured for tax and contributions and serves retirement provision; capital-forming payments are taxable employment income for asset building. - Capital-forming payments and the savings bonus – the employer pays the former, the state the latter. The two can coincide but need not. - Capital-forming payments and an occupational pension – they do not run under pension law and are not a pension promise. - Capital-forming payments and benefits in kind – they are money with a restriction on its use, not a benefit in kind.
6. Variants and adaptations
- A building society contract – traditionally the most widespread form; as a rule eligible for the subsidy. - Equity saving – fund or participation contracts; likewise eligible, with an income limit of their own. - A bank savings plan – possible, but regularly not eligible for the subsidy. - Repayment of a building loan – permissible as a use. - Topping up by the employee – anyone wanting to save more than the employer pays adds to it out of net pay.
7. Advantages and challenges
Advantages
- A simple, intelligible benefit with high acceptance
- For employers, manageable in amount and administration
- The state savings bonus can come on top
- Encourages asset building even with small amounts
- In sectors under collective agreements, it matches the market
Challenges
- Subject to tax and contributions — less remains net than the amount suggests
- The amounts are small measured against today's pay
- The savings bonus applies only to certain investment forms and below income limits
- Lock-in periods tie the money up for years
- Administrative effort where there are many different contracts
8. Best practices for implementation
Capture the contract data properly
Institution, contract number, term. Incorrect details lead to returned payments and delayed transfers.
Process changes promptly
New contracts, cancellations and changes of institution take effect from the respective month.
Point out the savings bonus
It is claimed through the tax return – many employees do not know that and leave the subsidy unclaimed.
Where a collective agreement applies, look there first
The amount and conditions are frequently already settled there.
9. Tips for employers and employees
For employers
- **These are not a tax-favoured provision component** – anyone looking for that means salary conversion
- **Transfer directly to the institution** – paying the employee does not serve the purpose
- **Maintain the contract data** – returned payments create rework in payroll
For employees
- **Claim the savings bonus** – through your tax return; it does not arrive automatically
- **Choose the investment form deliberately** – not every one qualifies
- **Watch the lock-in period** – disposing of the money early can cost the subsidy
- **Check whether you are entitled** – common in sectors under collective agreements, otherwise only by agreement
10. Conclusion
Capital-forming payments are an old, simple and still popular component of the remuneration package – with one misunderstanding that persists: they are not a tax-favoured provision component. The amount increases gross pay and contributions arise on it; what is favoured is the state employee savings bonus, and that depends on the investment form and income and has to be claimed through the tax return. Anyone wanting tax-favoured provision means salary conversion.
For an international group that distinction decides where the benefit belongs in the package. This is pay with a restriction on its use, not a pension contribution: it costs the employer the same as a pay rise of the same amount, and the employee receives less than the headline figure. The subsidy that makes it attractive comes from the state and only if the employee claims it, which is worth saying in the communication rather than leaving to chance.
A note on sources: there is no official English version of the ordinance on capital formation, the Income Tax Act or SGB IV (checked on 2026-09-28); the German texts are cited below and their wording governs.
Sources
- Ordinance implementing the Fifth Act on Capital Formation, VermBDV (German original; no official English version) (opens in a new tab)
- Section 19 EStG – Income from employment (German original) (opens in a new tab)
- Section 14 SGB IV – Remuneration (German original) (opens in a new tab)
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