Pension increase 2024: How does inflation affect pensioners?

Pension increase 2024: How does inflation affect pensioners?

Many pensioners in Germany are anticipating another pension increase on July 1st of this year. However, the question remains as to what extent this adjustment will be noticeable against the background of rising inflation. The problem of poverty in old age comes into focus because pension contributions are often inadequate due to short working life phases and rising living costs. But are pension increases proportionate to inflation?

In the period from 2000 to 2023, Germany recorded a 54.6 percent increase in consumer prices. At the same time, the gross standard pension rose by 51.4 percent for western pensioners and by 74.0 percent for eastern pensioners. The upcoming pension increase in July by 4.57 percent will result in an amount of 1,769.40 euros, which, however, is not realistic for all pensioners as specific requirements must be met.

The actual pension payment amount is a practical indicator that reflects the amounts that remain for pensioners after deducting health and nursing care insurance contributions. In 2022, this value averaged 1,054 euros per month, which corresponds to an increase of around 52 percent compared to the turn of the millennium. Given a forecast pension increase of 4.57 percent and expected inflation of 2.2 percent in 2024, this trend could continue.

The years 2010 to 2020 showed a very divergent development between wage inflation and pension adjustments, due to good employment and economic prosperity. In the future, the federal government is planning annual pension increases of 2.6 percent until 2037, although Pension Package II could possibly lead to further adjustments. However, pension trends remain critical as pensions are unlikely to keep pace with wage increases and additional taxation could reduce the expected amount.

The taxation model for pensioners stipulates that the entire gross pension will be taxable by 2060, with 83 percent already having to be taxed today. The current situation shows that of the approximately 21 million pensioners in Germany, only 6.3 million are liable to pay taxes. With the upcoming pension increase, almost 114,000 pensioners are expected to be liable to tax for the first time. Tax liability also depends on additional income, such as rental income or capital gains. A lot depends on whether there is additional income and whether a total of 1,234 euros in gross monthly pension can be received without having to pay taxes. Expenses could reduce taxes in this context.

The Prognos study commissioned by GDV highlights the dependence of pension purchasing power on where you live. The study found that regional pension levels and purchasing power were least favorable in the south of Germany. For example, the purchasing power in Regensburg was 862 euros per month. In contrast, the new federal states have better prospects due to lower living costs.