Pension taxation

Pension taxation was reformed by the Retirement Income Act with effect from 1 January 2005. Since then, pensions have been taxed "downstream": what remained tax-free during the contribution phase becomes taxable when the pension is received. Thereafter, the pension tax rate increases gradually from 50% (at the start of the pension in 2005 or earlier) to 100% (at the start of the pension in 2058 or later). To compensate for this, the special expense deduction for corresponding contribution payments will be gradually increased. Since 2023, 100% of these can be claimed for tax purposes.

In addition, the Retirement Income Act stipulates that pension insurance providers operating in Germany must notify the tax authorities of the amount of pension payments each year. These pension payment notifications are intended to ensure that all pensioners with taxable pension income are actually recognised for tax purposes. This is a requirement of equal taxation, which the Federal Constitutional Court has demanded be observed - as it has previously done for capital income and speculative income.

Every taxpayer whose income exceeds the basic tax-free allowance must submit a tax return. In the case of pension income, the taxable portion of the pension is used as the basis for checking this limit. If this exceeds the basic tax-free allowance - possibly also together with other income, e.g. from renting - there is an obligation to file a tax return. A tax return must also be submitted if taxable wages are received in addition to the pension, e.g. from a company pension or a part-time job (flat-rate taxed "mini-jobs" are not included). If in doubt, the relevant tax office or a tax adviser will help you to determine whether you are obliged to file an income tax return.

Submitting a tax return does not necessarily lead to the assessment of income tax. Standard and personal allowances or deductible expenses (e.g. medical expenses or handyman services) can reduce the tax to as little as 0 euros.

Further information on pension taxation can be found in the "Tax Guide for Retirement" published by the Hessian Ministry of Finance.