The pension tax system in Germany remains a focus, especially for those approaching this stage of their lives. Questions about how retirement income will be taxed, limitations and benefits are becoming important aspects of financial planning for future retirees. In this article we will take a closer look at all the exemptions and nuances that play an important role in German tax policy and affect how the income of pensioners is taxed.
Does not constitute tax advice.
A few facts about pensions in Germany:
- Pension is income subject to taxationIn addition, pensioners pay contributions to health and social insurance
- For pensioners, the Grundfreibetrag also applies - a tax-free minimum subsistence level of 11.604 euros per year (for 2024)
- Pension benefit - 100% of the pension will be taxed only from 2040, until then part of it (depending on the year of retirement) exempt from tax payments
- According to Statista, the average pension in 2022 for men € 1281 per month, among women € 972 per month
basic allowance
The cost of living in 2024 will be 11.604 euros per year. This is an important financial milestone because, according to tax rules, all income up to this amount is exempt from tax, including pensions.
If a person is married, then “double cost” of the subsistence minimum applies. This means that instead of one sum of 11.604 euros, the cost of living doubles, which is 23.208 euros per year for married couples.
This amount includes absolutely all income of a pensioner – pension, income from the rental of real estate, profit from the sale of securities, etc.
Rentenfreibetrag
Rentenfreibetrag is the tax-free part of the pension that varies depending on the year of retirement. The later the year of retirement, the greater the share of taxation of the pension, and the less the non-taxable part:
- to 2005
- 2006
- 2007
- 2008
- 2009
- 2010
- 2011
- 2012
- 2013
- 2014
- 2015
- 2016
- 50%
- 52%
- 54%
- 56%
- 58%
- 60%
- 62%
- 64%
- 66%
- 68%
- 70%
- 72%
- 2017
- 2018
- 2019
- 2020
- 2021
- 2022
- 2023
- 2024
- 2025
- 2026
- 2027
- 2028
- 74%
- 76%
- 78%
- 80%
- 81%
- 82%
- 83%
- 84%
- 85%
- 86%
- 87%
- 88%
- 2029
- 2030
- 2031
- 2032
- 2033
- 2034
- 2035
- 2036
- 2037
- 2038
- 2039
- 2040
- 89%
- 90%
- 91%
- 92%
- 93%
- 94%
- 95%
- 96%
- 97%
- 98%
- 99%
- 100%
- 2017
- 2018
- 2019
- 2020
- 2021
- 2022
- 2023
- 2024
- 2025
- 2026
- 2027
- 2028
- 74%
- 76%
- 78%
- 80%
- 81%
- 82%
- 83%
- 84%
- 85%
- 86%
- 87%
- 88%
- 2029
- 2030
- 2031
- 2032
- 2033
- 2034
- 2035
- 2036
- 2037
- 2038
- 2039
- 2040
- 89%
- 90%
- 91%
- 92%
- 93%
- 94%
- 95%
- 96%
- 97%
- 98%
- 99%
- 100%
The exempt portion is determined based on these figures and the amount of the pension for the first year after retirement and is a constant amount that does not change throughout life.
How is the amount of pension tax calculated - an example
Irma retires in 2023, her pension is 1300 euros per month or 15600 euros per year. The taxable portion of Irma's pension 83%, since her retirement year is 2023. Thus, only 12948 euros will be taxed. Total: 15600 euros – 12948 euros = 2652 euros is a permanent non-taxable part of the pension, which remains unchanged until the end of life.
We add all the exemptions together - Grundfreibetrag in the amount of 11604 euros, pension benefit 2652 euros = 14256 euros, which are tax-free. To this are added contributions for health and long-term care insurance.
Tax return for pensioners
It turns out that if a pensioner’s income goes beyond all preferential conditions, it is necessary to submit an annual tax return to the Finanzamt and pay tax contributions. Possible reasons why the need to file a declaration comes unnoticed: an increase in pension, death of a spouse, additional sources of pension (for example, Rürup-Rente).
Only the tax notice from the Finanzamt will make it clear whether taxes need to be paid and in what amount.
