The number of pensioners and the amount of pension payments are increasing. Many pensioners remain tax-free.
Around 22.1 million people in Germany received benefits totaling 381 billion euros from statutory, private or company pensions last year. According to the Federal Statistical Office, the number of pension recipients rose by 0.6 percent or 121,000 compared to the previous year. The amount of pensions paid also grew in the same period, by 4.9 percent or 17.7 billion euros.
Of the total pension benefits in 2023, 68 percent (260.5 billion euros) were taxable income. Since 2015, the average taxable share has increased by 13 percentage points.
New taxation regulations
The reason for this increase is a new regulation on the taxation of retirement income in the Retirement Income Act of 2005, explained the federal statisticians. The core of the new regulation is the transition from upstream to downstream taxation. This means that pension contributions are gradually made tax-free during the savings phase and only the payments are taxed. The transition phase, which was previously scheduled to run until 2040, was recently extended to 2058.
The proportion of pension income that is subject to tax depends on the year in which the pension begins: the later the pension begins, the higher the proportion of pension income that is subject to tax. In addition, the proportion that is subject to tax increases due to pension increases, as these are fully subject to tax.
Many pensions remain tax-free
For many pensioners, the taxable portion of their pensions after deductions is below the basic allowance. Therefore, many pensions remain tax-free if there is no other income. It is not yet possible to say how many pensioners will pay income tax for 2023 due to the long deadlines for tax assessment, it said.
Only 40 percent had to pay taxes
The most recent information on pension taxation is therefore 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 share increased by 2.7 percentage points or 636,000 people.
According to the Federal Office, 82 percent of pensioners who paid taxes in 2020 had other income in addition to pensions, such as pension benefits, employment income or rental income.
Source: Stern
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