A fund-based pension plan – what does that mean?
Funds? Shares? Worried if your pension is genuinely secure? Relax. Learn more about fund-based pension plans and why Vantage Towers has opted for this model.
What models are there for company pension plans?
The law provides multiple models for company pension plans. This means that your employer has different options for structuring and funding your pension entitlements.
Vantage Towers has elected to provide an employer-operated, fund-based pension plan. Employer-operated means that Vantage Towers itself is responsible for the benefits that have been promised to you and pays them out to you, as opposed to a third party such as a direct insurer or dedicated pension fund. All contributions are invested in a special fund so that they can grow further.
Why has Vantage Towers decided on a fund-based solution?
The fund-based solution and investment strategies give you the flexibility you need to make decisions about financing your retirement based on your current individual needs.
We have selected investment funds for you in partnership with an external investment adviser. You can choose between three different investment strategies: growth, balance or security. Would you prefer to invest in shares or concentrate more on fixed-income securities? You can decide for yourself when choosing an investment strategy. You can change strategy at any time or retain it until you retire. Something good to know is that each investment strategy continuously reduces your equity exposure until you retire.
Unlike with direct private investments in investment funds, you cannot lose anything – Vodafone guarantees all contributions for you. The life cycle model is a trusted approach for company pensions: the mix of bond and equity funds takes into account your current needs when investing capital, with the focus moving from capital generation in the early years to capital preservation when you are closer to retirement.
Income threshold
The income threshold is a ceiling on your gross income that caps the amount used to calculate your social security deductions. The Pension Plan utilises this income threshold too. It plays a particularly important role for your contributions.
Contribution rates
Your base contribution of 0,5 per cent applies to your gross annual base salary (including supplements) up to the Income threshold. If you earn above the Income threshold, you pay in 0.5 per cent of your earnings up to the income threshold, with Vantage Towers matching and doubling this amount to give you an extra one per cent. You can also top up your base contribution flexibly to secure additional contributions from Vantage Towers. You can pay up to 4.5 per cent of salary components above the income threshold into your Pension Plan. Vantage Towers will match and double this contribution as well, allowing for a maximum of nine per cent of remuneration above the income threshold.
The background behind this is that the social security system only draws on salary components up to the income threshold. Neither you nor Vantage Towers have to or are able to pay social security deductions on income above the income threshold. However, that also means that remuneration above the income threshold will not count towards your state pension later in life, making the difference between your salary and state pension even greater.
Annual adjustment
The income threshold is adjusted every year based on salary trends within Germany. You can find information about the current income threshold online. The Pension Plan is applying a single income threshold of €96,600 for West Germany and for East Germany in 2025.
How your pension is taxed
Your company pension is part of your income and therefore subject to tax.
Paying in
All contributions are paid in tax-free. This usually gives you great benefits for your personal contributions. These contributions are deducted from your gross salary, reducing your gross income and the amount used to calculate the taxes you are charged. Less gross income means less tax to pay. So, while your full contribution is put into your pension account, it feels like you are only missing out on half of it thanks to the tax savings.
Paying out
When it is time to pay out, however, you will be subject to the normal taxes. On the other hand, your tax rate in retirement is usually lower than during your working life. This is because your income will most likely be lower. Vantage Towers normally only pays out your pension balance on 31 January of the year following your retirement. Paying out your pension at this time usually benefits your tax, since you will already be receiving a state pension lower than your gross salary. That in turn means that the amount used to calculate your tax is also lower than if your pension were paid out in your last year of work.
How your pension works with social security
Social security deductions are payable for company pensions; these deductions differ when paying in and paying out.
Paying in
When paying in, your contributions are not subject to social security deductions if they do not exceed four per cent of the income threshold – and they are tax-free, too. In 2025, four per cent of the income threshold equals €3,864.
By paying into your company pension, you also save on social security deductions that otherwise go into the state pension scheme. This reduces your state pension entitlements slightly, though the Pension Plan normally more than makes up for this.
Income above the income threshold is generally not subject to social security deductions, so additional contributions in excess of the income threshold do not lead to savings in this regard.
Paying out
The regular social security deductions must be applied when your pension balance is paid out. When you are retired, you no longer need to pay into the state pension and unemployment insurance schemes, though you are responsible for the full amount of your health and nursing insurance – even the part your employer used to pay.
If you sacrifice parts of your salary that are above the income threshold when you are paying in, you will not save on social security deductions. While earnings above the income threshold are generally not subject to deductions, you will have to pay social security deductions if your income falls beneath the income threshold after retirement. It may therefore be the case that parts of your income that were deduction-free when you were paying into your pension then become subject to deductions when your pension is paid out during retirement.