Capital-forming benefits

What are capital-forming benefits?

Capital-forming benefits are voluntary payments made by employers. Capital-forming benefits are often abbreviated to VL or VWL. They are regulated in the Capital Formation Act – VermBG.

Capital-forming benefits are a form of asset accumulation for employees, often in relation to retirement provision. In order to be able to use capital-forming benefits, a savings contract must be concluded, e.g. through a bank savings plan, building society savings contract or equity fund. Capital-forming benefits are usually calculated and deducted as part of payroll accounting.

In principle, the term here is seven years. After that, there is the option of agreeing a new contract or paying out the sum saved.

What are the advantages of capital-forming benefits?

Employees, civil servants, professional soldiers and trainees are entitled to a state subsidy under certain conditions. These often depend on a certain income limit that must not be exceeded and the type of investment.

What state subsidies are available for VWL?

The following subsidies are possible if you fall below the income limit:

How much can be saved each month?

Employers are free to decide whether and how much VWL should be saved for an employee, provided it is not prescribed by a collective agreement. The amount of the subsidy is capped at 40 euros and capped at a minimum of 6.65 euros. The employer may pay in 400 euros per year for the capital contribution, and as much as 470 euros per year for a building society savings contract.

How do you recognize capital-forming benefits on the payslip?

The amount of capital-forming benefits is regulated in the employment contract and is clearly shown on the monthly payslip. VWL benefits are subject to tax and social security contributions. They increase the gross salary. VWLs are not non-wage labor costs.

Is there a statutory entitlement to capital-forming benefits?

No, in principle there is no statutory entitlement. The VWL can be paid on a voluntary basis. The amount of the payment is agreed individually and is often set out in the employment contract.

In certain collective agreements, corresponding capital-forming benefits may be agreed and therefore also apply to employees. This is the case, for example, in the public sector or the bakery trade.

The following groups of people can use VWL:

• Employees
• Civil servants
• Judges:inside
• Soldier:inside
• Apprentices

Freelancers, self-employed persons and pensioners are not entitled to capital-forming benefits.

How do you save with capital-forming benefits?

There are uniform rules for saving with VWL The agreed savings amount is transferred monthly to the specified account of the savings contract by the employer. The employee has no direct contact with the money and also has no direct access to the savings account.

Payments are made into the savings account for six years. After this, there is a waiting period of one year during which a new contract can be agreed. Without an extension, the vesting period ends after seven years. Depending on the contract, interest can also be paid on the payments made. This depends on the savings contract in question.

When are capital-forming benefits paid out?

After seven years, the amount saved can be paid out. However, a savings contract can also be terminated. This can also result in an early payout.

What happens when the savings contract ends?

After seven years, the savings contract holder may decide whether the existing contract should be replaced by a follow-up contract or extended. Alternatively, the assets can be paid out for free use and the contract thus terminated.