Double taxation of pensions: reform could bring thousands of euros to some citizens

Created: 02/22/2022 05:57

By: Jan Trieselmann

The traffic light coalition wants to prevent double taxation of pensions.

Some cohorts could have particularly high tax advantages from a corresponding reform.

A financial mathematician calculates tax advantages of up to 23,500 euros in this regard.

(symbol photo) © Stephan Scheuer/dpa

According to a ruling by the Federal Constitutional Court, the traffic light must stop double taxation of pensions.

The planned changes will benefit one vintage in particular.

Frankfurt/Berlin – The traffic light government of the SPD, Greens and FDP is planning a major reform in the taxation of pensions, which could save many citizens several thousand euros.

This was preceded by a groundbreaking judgment by the Federal Fiscal Court (BFH) from May 2021 *: It had requested a change in pension taxation so that there would be no double taxation for certain age groups in the future.

Because it's unconstitutional.

Double taxation on pension* means that pensioners receive less tax-free pension money than they paid into the pension fund during their working life.

The reform thus affects those citizens who have statutory pension insurance.

But their benefits vary depending on the year of birth, as a financial mathematician reported on by the Süddeutsche Zeitung has now calculated.

Pension tax reform: prevent double taxation with two measures

Specifically, the reform involves two changes to prevent double taxation of pensions: On the one hand, contributions to pension insurance will be fully tax-deductible from 2023 and not only from 2025. The traffic light coalition also had this plan after the 2021 federal election already announced in their plans for the pension in Germany and FDP boss Christian Lindner confirmed again last January.

On the other hand, pensions have been taxed more and more since 2005, when they started with a rate of 50 percent.

According to the current regulations, it would reach a rate of 100 percent as early as 2040, but last June Olaf Scholz, Minister of Finance, announced corrections to the taxation of pensions, according to which this should only be the case in 2060.

Double taxation of pensions: reform could bring tax advantages of up to 23,500 euros

For retirement in 2022, the proportion of the pension that has to be taxed is currently 82 percent.

So that this would only be 100 percent when taxing the pension in 2058, it should only increase by just under 0.5 percent instead of the current one percent.

Pension taxation will therefore be stretched somewhat.

According to the Süddeutsche Zeitung, the financial mathematician Werner Siepe has now calculated what drastic consequences this will have for some citizens.

The financial relief from pension taxation could therefore amount to up to 23,500 euros - depending on the individual income and the year in which the pensioners were born.

In fact, of course, the citizens do not receive more money because they simply do not have to pay tax on an unconstitutionally high proportion as quickly.

Reform to prevent double taxation of pensions: Tax benefit peak in 2040?

But the differences are serious: According to Siepe's calculations, anyone who retires by 2040 will have tax advantages that are increasing every year until then.

From 2040 onwards this tax benefit will gradually decrease again, although it will remain significant for the first few years thereafter.

In 2040, however, the tax benefit will reach its peak: if you then retire, it will be just under EUR 12,500 for an average earner who has paid into the pension fund for 45 years and earned EUR 3,240 gross per month.

In the case of top earners (7,050 euros gross monthly), from whom Siepe expects deductions at the age of 40 and early retirement, it would even be the said almost 23,500 euros.

He assumed a retirement age of 65 years.

Double taxation of pensions: Larger tax advantages with reform for some cohorts

An overview of which age groups have which tax advantages according to Werner Siepe - in the middle column the top earners, on the right the average earners:

It can be clearly seen that those cohorts that are furthest away from retirement in 2040 have only minimally lower deductions from pension taxation.

This applies above all to those born in the late 1950s who are currently retiring or who will be retiring in the next few years, as well as shortly before 100 percent taxation around the year 2060. The tax advantages of those born in the late 1990s in particular would also be clear less big than others.

(Jan Trieselmann) *fr.de and Merkur.de are offers from IPPEN.MEDIA