Pension Taxation: Navigating Tax-Free and Taxable Pension Income
- by Nadine Oberhuber
- 2 Min
Can one collect a pension tax-free? - Questionrephrased: What's the pension amount exempted from tax payments?
The module of Finance makes it clear: coming retirees can rake in 16,243 euros in yearly gross pension without facing any taxes on it in 2024. This number is doubled for couples. Even older retirees who began receiving their pension in 2005 could receive up to 19,758 euros without tax issues, thanks to the aforementioned gradual pension taxation adjustment since 2005. The tax-free allowance declines by a few euros annually for incoming retirees, as the taxable part escalates accordingly.
In 2024, 83% of the gross pension was taxable. It was initially planned for 100% taxation by 2040; however, full taxation is now expected to hold off until 2058, as stated by the Growth Opportunities Act. This delay means workers can channel more of their income for retirement savings without immediate taxation.
Who Needs to File a Tax Return?
This regulation aims to promote fairness in retirement savings and motivate younger people to save privately. Although they initially draw from their untaxed gross income, their pension-related payments eventually get taxed. However, assumption states that pensioners will face lower tax rates. Thus, retirement savers gain a slight tax advantage in this sense.
Essentially, anyone who had over 11,604 euros in pension income throughout the previous year, regardless of retirement date, must file a tax return. In 2025, this threshold grows to 12,084 euros. This tax-free allowance signifies approximately 1,000 euros in pension monthly income, allowing a tax-free existence (if there are no other deductions). However, pensioners might have advertising expenditures and special assessments, or they might be eligible for extraordinary burdens, elevating their income beyong the tax-free allowance limit. But the tax office needs to verify this case by case.
Taxable Pension Compound: 83%
To put things into perspective, as per the Ministry of Finance calculation, in 2024, the highest tax-exempt pension a new retiree could receive amounts to 16,243 euros yearly, equivalent to 1,323 euros monthly. A taxable portion of 83% applies to these retirees, translating to 13,481 euros in taxable pension income. Additionally, retirees can deduct an advertising cost allowance of 102 euros, a special expenses allowance of 36 euros, and retirement provisions up to 1,739 euros. This results in the 11,604 euros for 2024.
Retirees who began receiving their pension in 2005 can still receive half of their pension income tax-exempt, translating to up to 19,758 euros, equivalent to 1,610 euros monthly, tax-free.
- Tax
- Pension taxation
- New retirees
- BMF
Extra Insights:
- In 2025, the tax-free allowance for single retirees and couples amounts to €12,096 and €24,192, respectively.
- The taxable portion for pensions starting in 2025 equals 83%, while it steadily increases for subsequent years, reaching 100% for pensions starting post 2040.
- Rules related to the flat-rate deduction of €102 for pension income apply differently for various pension types and foreign pensions.
This structured increase in pension taxation reflects Germany's gradual movement towards a fully taxable pension system for incoming retirees, covering 15 years. In case combined income from pensions and other sources overstep the basic tax-free allowance, taxation becomes applicable on the surplus.
- The gradual pension taxation policy in Germany, adjusted since 2005, allows retirees to receive up to 19,758 euros annually without taxation for pensions started in 2005.
- New retirees can earn 16,243 euros annually tax-free in 2024, with the taxable portion escalating as the tax-free allowance declines yearly.
- The Growth Opportunities Act has delayed full taxation of pensions from 2040 to 2058, allowing workers to channel more income towards retirement savings.
- In 2025, single retirees and couples will have a tax-free allowance of 12,096 and 24,192 euros, respectively, and a taxable portion of 83% for pensions starting at that time.
