- The number of pensioners is increasing
Around 22.1 million people received a total of €381 billion in pensions from statutory, private, or occupational sources in Germany last year. According to the Federal Statistical Office, the number of pension recipients increased by 0.6 percent or 121,000 compared to the previous year. The amount of pensions paid also increased by 4.9 percent or €17.7 billion in the same period.
68 percent (€260.5 billion) of the total pension payments in 2023 were taxable income. Since 2015, the average tax rate has increased by 13 percentage points.
Reform of the Taxation of Retirement Income
The reason for this increase is a reform of the taxation of retirement income under the Pension Benefits Act of 2005, explained the federal statisticians. The core of the reform is the transition from a pre-payment to a post-payment tax system. This means that pension contributions are gradually tax-free during the savings phase, and only the payments are taxed. The transitional phase initially planned until 2040 has recently been extended to 2058.
The proportion of pension income that is taxable depends on the year the pension begins: the later the pension begins, the higher the taxed proportion of pension income. In addition, the tax rate increases with pension increases, as these are fully taxable.
Many Pensions Remain Tax-Free
For many pensioners, the taxable part of their pensions is below the basic allowance after deductions. Therefore, many pensions remain tax-free if there are no other incomes. The number of pensioners who had to pay income tax in 2023 cannot yet be communicated due to the long periods for tax assessment.
Only 40 Percent Had to Pay Taxes
The most recent information on pension taxation is available for 2020. In that year, 40 percent or 8.7 million of the total 21.8 million recipients had to pay income tax on their pension income. Compared to 2019, this proportion increased by 2.7 percentage points or 636,000 people.
According to the Federal Office, 82 percent of the pension recipients who paid tax in 2020 also had other incomes such as benefits, employment income, or rental income.
The reform in the Taxation of Retirement Income under the Pension Benefits Act of 2005 has resulted in a significant increase in taxable pension income, with 68% being taxed in 2023. To avoid paying taxes during the savings phase, the new system transitioned from a pre-payment to a post-payment tax system, taxing only pension payments.
