Severance Pay and Pension: Offsetting Deductions

The short answer: the severance payment doesn’t count, but the date does

A high severance payment doesn’t improve your pension. The severance payment is exempt from social security contributions, no pension contributions are paid on it, and so it doesn’t earn you a single pension point. But it doesn’t reduce a state pension either.

Three other things matter for your pension, all of which are fixed in the termination agreement (Aufhebungsvertrag) or settlement: when your employment ends, how you bridge the time until retirement, and whether you use part of your severance payment to offset pension deductions. This page is about exactly this interplay between severance pay and the statutory pension insurance.

We explain how to use your negotiating position as an older employee, what a social plan provides for, and how the bridge calculation works, under Severance Pay for Older Employees (55+). Read on there if it’s the amount of your severance pay you’re interested in. Here, it’s about your pension.

Severance pay and pension contributions: why there are no pension points

Pension contributions are levied on employment income. Under § 14 SGB IV, employment income means all earnings from an employment relationship. According to case law from the Federal Social Court (BSG, 21 February 1990, 12 RK 20/88), severance pay for the loss of your job isn’t such income: it compensates you for future lost earning opportunities and isn’t paid for a period of employment. That’s why no contributions to pension, health, long-term care or unemployment insurance are due on it.

The flip side: no contribution, no earnings point (pension point). Anyone who earns exactly the average income of all insured people for a year receives one earnings point.

So, following the pension adjustment of 4.24 percent on 1 July 2026, one earnings point is worth €42.52 in monthly pension, for every month you receive your pension.

Salary during your notice period earns pension points, severance pay doesn’t

This is exactly the distinction many people overlook. If your employment continues until the end of your notice period, you pay pension contributions on every salary payment and build up earnings points. This also applies during paid garden leave: as long as your salary continues, contributions keep running until the contract ends (BSG, 24 September 2008, B 12 KR 22/07 R). A termination agreement that shortens the notice period and folds the missing months into the severance payment trades pension points for contribution-free money.

Worked example: six months less contribution time

Sabine, 61, earns €5,000 gross per month. Her notice period is seven months. Her employer offers a termination agreement that ends her employment six months early.

• Missing contributory income: 6 × €5,000 = €30,000
• Missing earnings points: €30,000 ÷ €51,944 = around 0.58 earnings points
• Missing monthly pension: 0.5775 × €42.52 = around €24.56 per month
• Over 20 years of receiving a pension: €24.56 × 240 months = around €5,894

A simplified calculation, before tax and without future pension adjustments, which would let the loss grow over time too. The amount looks small, but your severance payment has to cover this gap as well. You can read what’s typical for the size of your severance payment under Severance Pay: Amount.

How much is your offer really worth? Use the severance calculator to assess your offer before you negotiate the end date.

Termination agreement shortly before retirement: unemployment benefit as a bridge

Anyone leaving their job in their late 50s needs a bridge to retirement. The most important element is Arbeitslosengeld I (unemployment benefit), and that’s exactly what a careless termination agreement can jeopardise.

1) Entitlement period: up to 24 months from age 58

If you’ve turned 58 and were in compulsory insured employment for at least 48 months within the extended assessment period, the maximum duration of unemployment benefit is 24 months (§ 147 para. 2 SGB III). These months aren’t lost time for your pension: anyone receiving unemployment benefit is subject to compulsory pension insurance (§ 3 sentence 1 no. 3 SGB VI), and the employment agency pays contributions based on 80 percent of your previous gross income (§ 166 SGB VI). For Sabine, six months of unemployment benefit would be worth around 0.46 earnings points, about €19.65 in monthly pension.

2) Benefit suspension period: twelve weeks without money or contributions

If you end your own employment through a termination agreement, you risk a benefit suspension period (Sperrzeit) of twelve weeks (§ 159 SGB III). During this time, no unemployment benefit is paid, and so no pension contributions either. The second effect is worse: a twelve-week suspension period due to voluntarily giving up work reduces your entitlement period by at least a quarter (§ 148 para. 1 no. 4 SGB III). So 24 months becomes at most 18. We explain when a good reason prevents the suspension period under Benefit Suspension Period for Unemployment Benefit and, for resignation, under Resignation and Benefit Suspension Period.

3) Suspended payments with a shortened notice period

If your employment ends before the end of the statutory notice period and you receive severance pay, your entitlement to unemployment benefit is additionally suspended (§ 158 SGB III). Pension contributions are missing in these months too. You can read how the suspension is calculated and how to avoid it under Severance Pay and Unemployment Benefit and Termination Agreement and Unemployment Benefit.

4) The 45-year trap

Anyone aiming for the deduction-free pension for especially long-term insured people needs 45 qualifying years. Unemployment benefit generally counts towards this, but under § 51 para. 3a SGB VI not in the last two years before retirement. The only exception: the benefit is due to your employer’s insolvency or complete closure. A termination agreement doesn’t fall under this exception.

Important: if you’re only a few months short of the 45 years, a later end date with paid months can be worth more than a higher severance amount. Have your qualifying periods confirmed in your pension information statement before you accept an end date.

You can’t receive unemployment benefit and a state pension at the same time: once the state pension is granted, unemployment benefit is suspended (§ 156 para. 1 no. 4 SGB III). A transfer company can be an alternative to the classic bridge.

Severance pay and retirement: age limits and deductions by birth year

When you can retire at the earliest, and when you can retire without any deduction, depends on your birth year and insurance years. Three types of pension matter:

• Standard state pension: at 67 for anyone born in 1964 or later (§ 35 SGB VI), for older birth years according to the transitional table in § 235 SGB VI.
• Pension for long-term insured people: 35 qualifying years, possible from age 63 with a deduction (§ 36 SGB VI, § 236 SGB VI).
• Pension for especially long-term insured people: 45 qualifying years, no deduction, but no early retirement option (§ 38 SGB VI, § 236b SGB VI).

Under § 77 SGB VI, the deduction is 0.3 percent for every month you draw your pension early. For the pension for long-term insured people, starting exactly at 63, this results in:

The deduction is permanent; it doesn’t disappear once you reach the standard retirement age. Severely disabled people have their own age limits, details under Dismissal with a Severe Disability. Only the German pension insurance can give you binding figures in your pension information statement.

Offsetting pension deductions with your severance payment (§ 187a SGB VI)

If you’re retiring early anyway, you can use part of your severance payment to buy back the deduction, fully or partly. This is based on § 187a SGB VI.

1) Requirements and process

1. From age 50: a legitimate interest in the necessary information statement only exists once you’ve turned 50 (§ 187a para. 1a SGB VI).
2. Apply for a special pension information statement: on request (form V0210), the German pension insurance calculates the maximum possible offsetting amount for your planned retirement date. In the application, you declare your intention to take early retirement.
3. Pay, fully or partly: instalment payments are explicitly allowed (§ 187a para. 3 SGB VI), even several within a year. If you pay within three months of receiving the statement, the German pension insurance confirms the amount can’t increase.
4. Mind the time window: you can only pay up until the standard retirement age, and only as long as the planned start date of the early pension covered by the statement hasn’t passed unused (§ 187a para. 1 SGB VI). So plan the payment before your intended retirement date.

Neither the application nor the statement obliges you to pay. If you end up working longer after paying, the German pension insurance says you’ll receive a correspondingly higher pension. There’s no refund of contributions already paid.

2) How the price is calculated

The method is set out in law. For every earnings point you lose through the deduction, you pay the price of one earnings point (contribution rate multiplied by the provisional average income, § 187 para. 3 SGB VI), divided by your access factor. The reason for the division: the bought-back points are also reduced by the deduction.

• Price of one earnings point in 2026: 18.6% × €51,944 = €9,661.58
• Access factor for 48 months of early retirement: 1.0 − 48 × 0.003 = 0.856
• Price per lost personal earnings point: €9,661.58 ÷ 0.856 = around €11,287

3) Worked example: born 1964, retiring at 63

Michael was born in 1964, has 35 insurance years, and wants to retire at 63, 48 months before his standard retirement age of 67. Without the deduction, his pension would be €1,800 gross.

A simplified calculation using the 2026 figures. The German pension insurance calculates more precisely: it includes the contribution periods still expected before retirement and uses the figures for the year of payment. So the amount in your statement will differ. A partial offset is proportional: with around €34,400, Michael would buy back about half of the deduction, roughly €129.60 per month.

In purely arithmetic terms, the full offset pays for itself after around 265 months, so just over 22 years, without pension adjustments or tax effects. Both would shorten this period. Whether it’s worth it for you depends on your life plans, other provisions, and your tax situation.

4) If your employer pays

The offsetting amount can also be part of the termination agreement. Employer payments covering contributions under § 187a SGB VI are tax-free, as long as they don’t exceed 50 percent of the contributions (§ 3 no. 28 EStG). Whether such an arrangement makes sense for you alongside or instead of part of the severance payment should be checked by a tax adviser before the wording is fixed in the contract. You can read what matters in these clauses under Termination Agreement with Severance Pay.

Already have a draft on the table? Have your termination agreement checked before you fix the end date and pension arrangement.

Tax: severance pay and offsetting payment in the same year

Severance pay is taxable. As compensation, it can be taxed at a reduced rate under § 34 EStG using the one-fifth rule. This reduction works better the lower your remaining income in the payout year, for example the year after your last full salary. But bear in mind that unemployment benefit is subject to the progression clause (§ 32b EStG) and increases your tax rate.

Offsetting amounts you pay yourself under § 187a SGB VI count as retirement provision expenses and are deductible as special expenses (§ 10 para. 1 no. 2 letter a EStG). In 2026, the maximum is €30,826 for single people and €61,652 for jointly assessed couples. Your regular pension contributions from your salary count towards this limit too. The German pension insurance itself points out that spreading payments across several calendar years can be tax-efficient.

Worked example: an offsetting payment reduces tax on severance pay

Single, no church tax, severance pay of €80,000, remaining taxable income in the payout year of €30,000, no unemployment benefit that year. Calculated using the 2026 tax rates in our severance calculator:

In this simplified example, the tax burden falls by around €14,430, because the one-fifth rule amplifies every reduction in your remaining income. This is a model calculation, not tax advice: have a tax adviser or income tax assistance association run the numbers for your case, and get pension advice from the German pension insurance too. More under Severance Pay and Tax, and on how to declare severance pay in your tax return under Severance Pay in Your Tax Return.

What’s left of your severance pay after tax? Work it out with the gross-to-net calculator for severance pay.

Additional income: pension and mini-jobs without a limit

Since 1 January 2023, there’s been no earnings limit for early state pensions. According to the German pension insurance, you can earn unlimited additional income alongside your state pension without it being reduced.

So early retirement plus a mini-job, part-time work or self-employment is possible. The deduction, however, remains permanent regardless. It’s different for reduced earning capacity pensions: earnings limits under § 96a SGB VI still apply there, and you may only work within your assessed remaining capacity.

Termination agreement and pension: checklist before you sign

1. Request your pension information statement. Your earliest possible retirement date, deduction-free retirement date, and qualifying periods met (35 and 45 years). Available at no cost from the German pension insurance.
2. From age 50: apply for a statement on the offsetting amount. Form V0210, no obligation.
3. Check the end date against your notice period. Every month earlier costs you pension points and can trigger a suspension of unemployment benefit.
4. Plan for or avoid the benefit suspension period. Twelve weeks without money or contributions, plus at least a quarter less entitlement period.
5. Check the 45-year trap. Unemployment benefit in the last two years before retirement doesn’t count towards it.
6. Calculate your bridge. Severance pay plus unemployment benefit until retirement begins.
7. Coordinate the offsetting payment and tax year. With a tax adviser or income tax assistance association, before the payout date is fixed in the contract.
8. Know your special protection against dismissal. Collectively agreed protection against termination or special protection against dismissal fundamentally change your starting position.

If your employer has a social plan with special rules for employees nearing retirement, check its caps too. You can read how to bring the points on this list into the negotiation under Negotiating Severance Pay.

Want to know where you stand? Use the severance calculator to get an initial indication of your severance pay.

How can we help you?

Shortly before retirement, a termination agreement can shape years of your retirement. Together with lawyers specialising in employment law, we look at your offer: does the end date match your notice period? Is a benefit suspension period a risk? Does the bridge reach to retirement? And is there room in the package for an arrangement to offset pension deductions? For tax planning and your pension data, we refer you to tax advisers and the German pension insurance.

We carry the risk: purely success-based, no upfront cost. Start with an initial assessment using our severance calculator, and don’t sign anything before you have your pension information statement in hand.