Pension development compared to inflation: changing purchasing power

Pension development compared to inflation: changing purchasing power

Pensions in Germany rise regularly, but not always in line with inflation. In some years there were even no increases. Pension recipients should therefore always consider how much their pension will actually be worth in the future. Pension developments are linked to wage developments, which has meant that there were times when pension increases exceeded the inflation rate and purchasing power increased again.

According to the Süddeutsche Zeitung and the German Pension Insurance (DRV), pensions have risen by 51.4 percent in the West and 74.0 percent in the East since 2000. In the same period, the inflation rate rose by 54.6 percent. However, pension adjustments always lag somewhat behind inflation. In years with higher inflation rates, pension increases occur later to at least partially compensate for the loss of purchasing power.

The tax side is also important: pension increases can lead to pensioners with low incomes becoming liable to tax, which can reduce purchasing power. The tax-free amount for 2024 is 11,604 euros. If the taxable income exceeds this limit, taxes must be paid on the pension. Pension taxation increases continuously, depending on the year in which you retire. In 2024, the taxable pension is 17 percent and is valid for life.

It is therefore advisable that prospective pensioners not only look at their pension information, but also take into account the possible effects of pension adjustments and tax burdens. Statutory pension provision alone is often not enough, which is why private provision also plays an important role in maintaining purchasing power in old age.