Pension taxation reform: what will change? Double taxation will be abolished and the tax burden on pensioners will fall.

Pension taxation reform: what will change? Double taxation will be abolished and the tax burden on pensioners will fall.

According to a report by www.infranken.de, the German traffic light government is planning to reform the pension system in order to abolish double taxation of pensions. The current problem is that both insurance contributions and pensions are taxed in Germany. In some cases this may result in double taxation. This injustice is intended to be remedied with the planned reform.

Double taxation occurs when the taxable pension is higher than the pension insurance contributions deducted during working life. This is because the proportion of the taxable pension increases year after year, while at the same time the deductible pension insurance contributions decrease. The reform of the pension system is intended to abolish double taxation from 2023.

According to the draft law of the Growth Opportunities Act, pension taxation will no longer increase by one percentage point annually in the future, but only by half a percentage point. This means that the 100% taxation of pensions will be postponed until 2058. At the same time, the tax deductibility of pension contributions will be increased. From 2023, up to 100 percent of contributions should be deductible.

The impact of this reform on the tax situation of pensioners is positive. Most pensioners are not affected by double taxation, but even these cases are intended to be eliminated by the new regulation. This reduces the tax burden for pensioners and the portion of the pension that has to be taxed changes gradually. If they retire in 2040, pensioners would only have to pay taxes on 91 percent instead of 100 percent of their pension.

The planned change in the law also offers tax advantages for pensioners. From January 1, 2023, pension contributions can be 100 percent deductible. The individual tax relief depends on the tax rate and the amount of pension contributions.

In order to retire financially secure, sound retirement planning is necessary. You should start from your current income and calculate what your last income will probably be before you retire. Based on this, you can determine your financial needs in retirement and create appropriate savings and investment plans.

For pensioners who need support, advice centers such as the German Pension Insurance or the Social Association of Germany are available. It is also possible to apply for financial help in the form of basic security if the pension is not sufficient.

The planned pension reform for 2023 plans to abolish double taxation of pensions and improve the tax situation of pensioners. Pension contributions can be fully deducted from 2023. This reduces the tax burden for pensioners and increases the tax-free portion of the pension. This leads to a higher net pension for pensioners. Sound retirement planning is important in order to retire financially secure.