Pension: Up to this amount, you do not have to pay taxes

Pensioners also have to pay taxes, but only on part of their salaries. The tax-free portion changes depending on the year of retirement.

Kassel – Those who retire this year have a pension allowance of 17 percent. Accordingly, pensioners have to pay tax on 83 percent of their pension, 17 percent are tax-free. The allowance remains the same as a fixed euro amount over the entire term of the pension – but depends on the year of retirement.

Pension allowance is calculated in the second year of reference and remains the same in subsequent years

Pensioners also have to pay taxes, but only on part of their salaries. (Symbolic image) © IMAGO/Evgenia Sunegina

Also, many retirees have to file a tax return and pay taxes every year. According to the latest information from the Federal Statistical Office, 2017.6 million of a total of 8.21 million pension recipients in Germany were affected in 4. But only part of the pension is taxable. This is where the so-called pension allowance comes into play. The basis for the calculation of this value is the full annual gross pension. Since a large proportion of pensioners do not retire exactly at the beginning of the year, but during the current year, the pension allowance is usually not determined until the second year of reference. Depending on the year of retirement, different pension allowances apply.

Adjustment of the pension allowance by year of retirement

A calculation example of the Lohnsteuerhilfeverein*: Peter will retire on April 1, 2023. This means that he is entitled to a pension allowance of 17 percent. His pension allowance is only calculated from the full annual gross pension of the second year of pension receipt – i.e. the year 2024. Peter's annual gross pension for 2024 is 15,000 euros. His pension allowance of 17 percent is thus 2,550 euros. This pension allowance is determined once and remains unchanged in subsequent years – even if his or her income increases as a result of pension adjustments.
*Vereinigte Lohnsteuerhilfe e. V.

Taxes are only payable if the taxable pension is above the basic allowance

With the help of the pension allowance, it is therefore possible to determine what proportion of their pension recipients have to pay tax on. But there is another important allowance, the so-called basic allowance. This applies to all citizens in Germany and accordingly to employees as well as pensioners. In 2023, the basic allowance was 10,908 euros. According to the Federal Ministry of Finance, an increase of 2024 euros to 696,11 euros is to take place in 604.

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Only if the annual taxable pension - i.e. the annual gross pension minus the pension allowance - is above this amount, taxes can be incurred on a pro rata basis. Many retired people are therefore completely spared the tax. According to the Federal Association of Wage Tax Assistance Associations, for example, citizens who retire in 2022 will not have to pay taxes if their gross pension, including the 300-euro energy price lump sum, was a maximum of 14,768 euros. If they receive more than this amount, pensioners must also file a tax return.

Pension is adjusted for inflation over time: pension increases are fully taxed

Both state pensions and occupational pensions are adjusted for inflation over time. Pension payments will increase accordingly. What influence does this have on the pension allowance? According to the wage tax assistance association Vereinigte Lohnsteuerhilfe e. V., the pension increases must be taxed in full.

A calculation example of the Lohnsteuerhilfeverein*: Ingrid will retire in September 2023 and will receive a pension of 1,000 euros per month. On July 1, 2024, the statutory pension will be increased, and it will then come to 1,100 euros. Like every pensioner, she is entitled to the income-related expenses lump sum of 102 euros, which the tax office automatically takes into account.
*Vereinigte Lohnsteuerhilfe e. V.

This is how the pension allowance is calculated, which applies to Ingrid throughout her life.

Some pensioners have to turn over every penny twice. However, pensioners can claim certain subsidies.