Double taxation of pensions: current developments

Double taxation of pensions: current developments

Double taxation of pensions is a controversial topic in Germany and has already led to significant legal changes. In 2002, the taxation of pensions had to be revised due to a ruling by the Federal Constitutional Court, as an impending unconstitutionality was found due to double taxation of pensions. Before this ruling, pensions were taxed according to the income share method, but this was considered unfair and unsustainable. The problem of double taxation results from the partial taxation of pension income before the introduction of downstream taxation.

Since 2023, significant changes have been introduced to avoid double taxation. A key measure was the abolition of the percentage limit on the special expense deduction for retirement provision expenses. In addition, it was decided to only increase the increase in the taxable pension share for new pensioners by 0.5 percentage points annually. These measures aim to avoid double taxation and provide pensioners with tax relief.

According to the Federal Finance Court, pensioners who have recently received a pension, formerly self-employed people without employer subsidies, single seniors without a survivor's pension and men due to their statistical life expectancy are most likely to be affected by double taxation. Another planned measure to avoid double taxation is the introduction of an additional standardized pension allowance, which is intended to exempt pensioners from taxation.

Experts and the Taxpayers' Association are critical of the previous measures to avoid double taxation and are calling for additional legislative measures. Further relief for pensioners is currently being discussed in the Bundestag in order to effectively prevent double taxation. Pensioners should therefore keep their tax assessments in order to be able to assert possible claims and to advocate for fair taxation of their pensions.