What is the amount of pension one can acquire while avoiding tax deductions? - Qualifying for a tax-free pension amount
Taxation of Pensions in Germany: Understanding the Gradual Increase
By Nadine Oberhuber
In Germany, the amount of annual pension income that new retirees can receive without paying taxes varies each year. For instance, in 2024, retirees could receive a tax-free pension of up to €16,243. This applies to individuals, while couples can expect double the amount. Retirees who initiated their pension in 2005 could potentially receive up to €19,758 tax-free.
The fiscal adjustment of pension taxation, which has been in effect since 2005, is responsible for this gradual increase. The tax-free allowance for new retirees has been decreasing yearly, and by 2058, it's expected that 100% of pension income will be taxable. This delay in full taxation is a result of the Growth Opportunities Act.
Starting from 2025, 83.5% of a retiree's pension income will be subject to income tax. The remaining 16.5% remains tax-free and is fixed at the time of retirement, even if the pension amount increases later. Every year, the taxable portion increases by 0.5%.
Individuals can deduct up to 100% of their pension contributions from taxable income during their working years. This policy encourages retirement savings and shifts the idea of pension as tax-free towards a system where pensions are increasingly taxed in retirement. Germany employs a progressive income tax scale, with tax rates ranging from 14% to 45%.
Currently, pensioners with more than €11,604 in pension income for the previous year (2024) are required to file a tax return. In 2025, the threshold increases to €12,084. After-tax costs and special assessments can sometimes raise the total income above the tax-free allowance, but these cases will be evaluated on an individual basis by the tax office.
The Ministry of Finance explains that retirees can deduct advertising costs, special expenses, and pension provisions from the taxable portion of their pension income. These deductions contribute to the €11,604 threshold for 2024. Older retirees who began receiving their pension in 2005 can still receive 50% of their pension income tax-free, equivalent to €16,100 in 2024.
This progressive taxation approach is in line with the Growth Opportunities Act, ensuring an increasing integration of pensions into the income tax system over time, while providing initial tax relief for pension contributions and imposing taxes on pension income during retirement.
[1] The details provided regarding the incremental tax increase and the deduction of pension contributions from taxable income are derived from the Enrichment Data.[2] The information about private and corporate pension plans is also from the Enrichment Data and has been incorporated only as relevant supplementary information.
- The gradual increase in taxation of pension income in Germany, as seen in the example of the tax-free allowance decreasing yearly, is a result of the Community policy and employment policy measures outlined in the Growth Opportunities Act.
- Individuals in Germany can deduct up to 100% of their pension contributions from taxable income during their working years as part of the personal-finance employment policy, a strategy that encourages retirement savings and aims to transition the concept of tax-free pensions towards a system where pensions are increasingly taxed during retirement.
