Pensioners in the East pay more taxes: the left calls for equalization

Pensioners in the East pay more taxes: the left calls for equalization

Pensioners in eastern Germany have to pay more taxes compared to their western German peers with similarly high salaries. This difference is causing debate in the Bundestag, especially since pensioners with a standard pension who retired before 2023 have to pay higher taxes on their retirement benefits in the East. A recent question from left-wing MP Sören Pellmann made it clear that pensioners in the East have a higher tax deduction compared to the West.

Data available to the Federal Ministry of Finance shows that pensioners who have been retired since 2010 and receive a standard pension of 20,768 euros a year pay more income tax in the East than their West German counterparts. This discrepancy will be reduced for pensioners who will retire from 2023, as there will no longer be any tax differences from this point onwards. However, Sören Pellmann emphasizes the importance of keeping an eye on existing pensioners, as they continue to pay higher taxes in the East, which he finds unfair.

The different tax burden between East and West results from the complex background of downstream pension taxation. This regulation stipulates that pension contributions are taken into account in income tax and the pension paid out is taxed. This process has been implemented gradually since 2005, with pensions generally being taxed at 100 percent from 2040. The annual pension increase also has an impact on the tax burden, with higher pension increases leading to a higher income tax burden in the East until 2023.

Despite the higher tax burden, pensioners in the East have an advantage because they can live more financially comfortably, according to a study by the Prognos Institute. The study shows that pensioners in East Germany have higher purchasing power due to the lower cost of living. In Gera in particular, the ratio of housing costs to pension income was particularly favorable in 2021. These positive effects of the low cost of living on pensioners in the East illustrate another side of the discrepancy in pension taxation.