Capital-forming benefits: how you can use the extra money

Morgaine Gerlach

Capital-forming benefits (Vermögenswirksame Leistungen, VL) are a special way of helping employees in Germany build capital. The money comes directly from the employer, in addition to the employee’s normal salary. These benefits can be up to 40 euros per month and are voluntary for employers.

The idea is that this money is invested specifically in certain types of investment. These might include, for example, savings and loan contracts or equity funds. The government supports this savings scheme with a variety of financial incentives, such as the employee savings allowance and the housing premium.

How do I get the most out of these benefits?

The amount of the savings bonus ultimately depends on the amount and type of capital-forming benefits and therefore varies: 400 euros for financial assets and 470 euros for building society or housing construction contracts per year – this is the highest amount that employers can grant their employees voluntarily or in accordance with collective agreements as capital-forming benefits (VL). 

Employees that put money into both investment forms can also get a savings bonus for both. For an equities fund, this would mean up to 80 euros per year in addition to the 43 euros for a savings and loan contract. In total, employees can get up to 123 euros per year in addition to the capital-forming benefits. If the amount paid by the employer is lower, employees can top up their share from their net salary up to the eligible amount for capital-forming benefits.

It is important to note that capital-forming benefits are not normally paid out directly to the employee but are paid directly into a savings scheme. The employee can choose between a bank savings plan, a fund savings scheme, a savings and loan contract or repayment of a real estate loan. Conclusion: Employees decide for themselves which investment form they want to put their capital-forming benefits into and inform their employers where the money should be paid. 

Are there any other rules to watch out for?

Regulations for the investment of capital-forming benefits are clearly defined by law.  Capital-forming contracts always have a duration of six years. 

Then there is an additional vesting period during which savers must wait before they can access the money they’ve saved. It should be noted that an asset-building contract always runs retrospectively to the 1 January of the year the employer first paid into the scheme. Specifically, this means that the benefits are paid in for six years, the contract vests for one year and then the money is available from the 1 January of the following year. 

During the vesting period in the seventh year, you already have the option of investing the capital-forming benefits in a new savings plan in order to avoid a payment gap. At the end of the seventh year, savers are free to decide when they want access to the funds from the capital-forming benefits.

How much do I get at the end?

If the employer has paid in the highest eligible rate of 40 euros per month, the amount after seven years comes to a total of 2,880 euros, plus interest and bonuses. The precise amount will, of course, depend on the form of investment you choose. One decisive aspect when investing in equity funds is the share price when the payout is due. If the price of the equity fund into which the capital-forming benefits were paid is unfavourable, it is advisable to wait until the price improves before selling. The shares do not have to be sold immediately after the savings plan expires.

Even though it’s not possible to predict exactly how much money you get after seven years, one thing’s for sure: we would not recommend turning down a financial gift from your employer, irrespective of the form of investment you choose.


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Morgaine GerlachMedia Spokeswoman