Taxation of pensions

With the adoption of the German Retirement Income Act (AltEinkG), the legislature established a completely new basis for the taxation of pensions from 1 January 2005.

 This was guided by the fundamental concept of deferred taxation. Deferred taxation means that the pension contributions are exempt from taxation during the savings phase and the pension benefits drawn from there are subject to taxation in full. Previously, both pension benefits from the statutory pension insurance scheme and those from professional pension funds were taxed on the basis of an income-based proportional taxation scheme. This means that during the savings phase, pension plan contributions are taken in part from taxed income and that this payment is therefore only to be taxed according to that proportion of income.

Since pension contributions were at least in part paid from taxed income in the past, pension drawn is not immediately taxed in full, as this would otherwise lead to double taxation. This is why legislature has stipulated long-term transition rules, as shown in this table:

Year of retirement until and including/ taxation proportion

200550 percent
200652 percent
200754 percent
200856 percent
200958 percent
201060 percent
201162 percent
201264 percent
201366 percent
201468 percent
201570 percent
201672 percent
201774 percent
201876 percent
201978 percent
202080 percent
202181 percent
202282 percent
202383 percent
202484 percent
202585 percent
202686 percent
202787 percent
202888 percent
202989 percent
203090 percent
203191 percent
203292 percent
203393 percent
203494 percent
203595 percent
203696 percent
203797 percent
203898 percent
203999 percent
from 2040100 percent

How heavily you are actually taxed depends on whether this pension is your only source of income or you receive income from other sources as well. The pension falls under other sources of income as regards income tax law. In addition to the other sources of income, there are still six more types of income (e.g. from capital gains). Of the seven types of income, the sum of all earnings which are subject to taxation determine the amount of income tax to be paid. Please note that personal questions on tax returns and tax liability can only be answered by a tax consultant who is familiar with your personal income situation.