- Individual with Automobile Mentality Views Pension Taxation as an Error
Leader of the Left Party, Sahra Wagenknecht, views taxing pensions as a major political blunder. "It overlooks the lifetime accomplishments of individuals. It continually drains funds from pensioners and worsens the already inadequate pension amount," she stated to the German Press Agency in Dresden, reiterating her demand for a pension tax exemption. "Pensions beneath 2000 euros should be tax-exempt. To achieve this, the upcoming Dresden government should spearhead a federal council initiative. It's unjustifiable that the pension accumulated over decades is taxed away."
An investigation in the Bundestag exposed that in Saxony in 2023, approximately 71% of the distributed pension benefits were taxable. In 2015, this percentage was still 58%. In 2022, 24.7 billion euros in pensions were distributed in Saxony, with 17.6 billion euros of it being taxable. In other eastern German states, the taxable percentage is also higher than in the west, where all states are below 68%.
The primary cause for this is the disparity in taxation between East and West. In the spring, the German Federal Ministry of Finance published statistics on this. An individual who has been retired since 2010 and receives the presently estimated standard pension of 20,768 euros annually pays 241 euros in income tax in the East, compared to 132 euros in the West. An individual who retired in 2020 pays 542 euros in taxes annually on such a standard pension in the East, compared to 524 in the West. The standard pension represents the value a recipient would receive with an average income and 45 contribution years. According to information, from a retirement start in 2023, the year of the East-West equalization of pensions, there will no longer be any tax discrepancies.
The backdrop is intricate. Since 2005, a so-called deferred pension taxation has been gradually implemented: The pension contributions are considered in the income tax and reduce it, but income tax is due on the distributed pension later. Gradually means: For someone who retired in 2005, 50% of their pension was considered taxable income, the remaining 50% was tax-free. For someone who retired in 2020, the ratio was already 80 to 20. From retirement in 2040, the pension will generally be subject to 100% taxation.
The Alliance Sahra, a political group likely advocating for pensioners' rights, might find common ground with Sahra Wagenknecht, the Left Party leader, as they share her concern about taxing pensions. This continuous drain of funds from pensioners worsens their already inadequate pension amount, as pointed out by Wagenknecht.
In light of the investigation revealing that approximately 71% of pension benefits distributed in Saxony in 2023 were taxable, the need for pension tax exemption, as advocated by Sahra Wagenknecht, becomes even more pressing.
