The company pension scheme in transition
The traditional company pension scheme—in Germany, the betriebliche Altersversorgung (bAV)—is on the verge of change. Often referred to as a “sacred cow” in Germany, companies have often been reluctant to adjust pensions, as employees frequently suspect this to be a cost-cutting measure, and a clear disadvantage for them.
However, in times of demographic change and a changing pension system, modern company pension models offer new opportunities for employers and employees. It’s a topic that requires good communication.
The future of pensions: Turning challenges into opportunities
While the traditional pension provision faces challenges, this opens the door for forward-looking solutions. Capital market-based company pension models are a promising alternative. They enable organizations to offer their employees attractive pension options, while taking advantage of the benefits of the capital markets. It also gives companies greater financial flexibility. According to a recently published study by Willis Towers Watson¹, further reforms are needed to achieve this—which depend on political will— to allow for the creation of a legal framework that considers opportunities and risks equally.
The company pension scheme: What employees really want
Company pension schemes—sometimes called occupational pensionschemes—are growing in importance as a key component of pension savings. According to the latest issue of Comp&Ben Magazine 2025², for many employees, this is the best way to save for retirement. However, expectations of company pension schemes have changed.
Employees want protection from inflation, asset security, and flexibility. Companies are responding with higher-return pension offers, which often come with reduced guarantees. A recent study³ shows that employees are increasingly prepared to forego guarantees in exchange for better potential returns.
Capital market-based company pension schemes: Potential returns and risks at a glance
Capital market-based company pension models offer the potential of higher returns as they invest more heavily in shares and other securities.
For the workforce, this can mean additional profits, and from the company perspective, it creates financial planning flexibility that can be used for strategic tasks.
However, these systems are also exposed to greater market fluctuations and must be carefully planned in terms of the risk/reward balance.
The benefits and risks to consider:
Opportunities
- Higher potential returns: Investing in the capital market can yield higher long-term returns compared to traditional, more conservative models.
- Flexibility: Many capital market-based company pension models offer flexible payout options, such as a lump sum, installment payments, or a lifelong pension.
- Inflation compensation: The potential of higher returns can help offset the loss of purchasing power due to inflation.
Risks
- Market fluctuations: The investment performance is tied to market movements and can therefore fluctuate.
- Reduced guarantees: Guarantees are often reduced to enable higher returns. A balanced risk assessment must be carried out.
- Complexity: Capital market-based company pension schemes can be complex. It is important to promote employee financial literacy.
Safety first: How companies protect company pension assets
Despite the capital market orientation, companies can and must meet their employees’ need for security, as this is a core issue of every company pension scheme. A balanced model design and suitable tools guarantee the security of the company pension assets.
- Protected implementation channels: Direct insurance and pension funds offer a high level of protection as they are independent of the employer’s financial situation. From a business perspective, this approach may not necessarily be equally advantageous for the company and the employee because, for example, the employer has no control over the pension fund’s contribution levels.
- Insolvency protection: The German Pension Protection Fund, Pensions-Sicherungs-Verein (PSVaG), secures employees’ claims in the event of the employer’s insolvency.
- Transparent communication: Clear and open communication about how company pension schemes work—and the risks involved—creates trust.
To ensure a successful launch: Create trust with open and transparent information
The key to the success of capital market-based company pension models lies in communication that is accessible and understandable for everyone. Companies should provide their employees with easy-to-understand information—adapted to their availability and knowledge level, and at a time and place that suits their working day—and allow them to actively engage with the topic. It is also essential that the company’s perspective is communicated clearly. What advantages does a capital market-based company pension scheme offer the organization? When an organization clearly communicates the reasons for introducing a new scheme, or converting an existing company pension scheme, it strengthens employees’ sense of shared responsibility. Financial education is an important aspect of modern internal communication. It enables employees to make informed decisions while fostering personal responsibility. Proven communications methods include:
Concrete communication measures
- Interactive information platform: A user-friendly intranet page, website, or app offering individual company pension options, pension calculators, and scenario simulations.
- Target group-specific training and Q&A sessions: Meetings and training sessions tailored to the needs and knowledge level of various employee groups. Q&As for individual queries.
- Multimedia communication package: Explanatory videos, infographics, and newsletters that clearly explain the benefits and functions of the new company pension, making it easy to understand, including for new employees.
- Works Council: Where a Works Council exists, it is helpful if it supports these measures, and provides balanced information about risks and opportunities, in the interests of employees.
If communicated well, the changes in the previous company pension scheme become almost invisible to participants—a particularly positive outcome.
Capital market-based company pension schemes - an opportunity in a changing workplace.
The capital market-based company pension scheme is an important step towards a sustainable and high-performance pension model that meets both the needs of employees and the requirements of a changing workplace.
These models are more than just a trend—in our view, they are one possible answer to the challenges of our time. With the right strategy, authentic communication, and a strong commitment, organizations can use these models to offer their employees an attractive and secure pension plan. A well-structured pension plan as a key benefit positions an organization as an attractive and responsible employer in the labor market, and strengthens its competitiveness for the best talent.
If you are planning to convert your company pension scheme to a new system, get in touch with us. On our project page, you can find some examples of how we have successfully supported clients in managing and communicating pension projects. You will also find a brief explanation of terms in our glossary, in Episode 3 – Company pension scheme.
Sources:
1 Willis Towers Watson The future of pension policy in 2025
2 Comp&Ben Magazine January 2025 What employees expect from company pension schemes
3 Willis Towers Watson Global Benefits Attitudes 2024
- This article was published on
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