More pension, less taxes: This is how you secure tax-free income!

More pension, less taxes: This is how you secure tax-free income!

Pension taxation in Germany presents many pensioners with major challenges. Annual adjustments and a complex system mean that not all pension income has to be taxed. Loud stern.de Newly retired pensioners can receive a maximum of 16,243 euros in annual gross pension in 2024 before they become liable to tax. For married couples, this amount doubles to 32,486 euros.

Older pensioners in particular benefit from different regulations. Pensioners who retired in 2005 can withdraw up to 19,758 euros tax-free. Nevertheless, the tax situation changes every year: the tax allowance for new pensioners is continually falling, while the taxable portion of the pension is increasing. In 2024, 83 percent of the gross pension would already be subject to taxation.

Downstream taxation and tax regulations

Full pension taxation, originally planned for 2040, has been postponed to 2058. The filing obligations are also clearly regulated. Pensioners who earn more than 11,604 euros in pension income in 2024 are obliged to submit a tax return. For 2025, this limit will be 12,084 euros.

As the German pension insurance explains in its report, pensioners can claim business expenses, special expenses and extraordinary burdens in order to reduce their taxable income. The deductions include a flat rate for business expenses of 102 euros and a flat rate for special expenses of 36 euros. In addition, pension expenses of up to 1,739 euros can be taken into account for tax purposes.

Taxable portions of the pension

The taxable portion of the pension is determined by an adjustment amount that relates to the regular pension adjustments. Statutory pension data is automatically transmitted by the German Pension Insurance to the tax office. Pensioners are obliged to submit an income tax return, but they do not have to provide data on their statutory pension.

Pension taxation affects not only old-age pensions, but also pensions due to reduced earning capacity and survivors' pensions. After the introduction of “subsequent taxation” in 2005, pension expenses remain tax-free until the pension is paid out, while pension income is taxed later. The tax portion of the pension depends on the year in which the pension begins and is increased gradually.

For example: Anyone who retired by December 2005 is subject to taxation of 50 percent of their gross pension. From 2006 onwards, this proportion increased by two percentage points annually until 80 percent was reached in 2020. From 2058 onwards, pensions will be fully taxed.

For the start of retirement up to 2057, a pension allowance is calculated that does not have to be taxed. This remains unchanged in subsequent years, even if the pension increases. An example illustrates this: Maren K. received an annual gross pension of 12,000 euros in 2005, which results in a pension allowance of 6,000 euros. Even if your gross pension increases to 16,905 euros in 2023, the pension allowance remains stable.

The rules for pension taxation are not only diverse, but also crucial for the financial planning of many pensioners. A retirement income calculator from the tax administration offers helpful support in determining income tax for seniors. At the same time, an opening clause makes it possible to deviate from “subsequent taxation” under certain circumstances if high pension insurance contributions can be proven.