Deferred Taxation of Pensions (Nachgelagerte Besteuerung)
Since 2005, pension taxation in Germany has been gradually transitioning: from upfront taxation (contributions from taxed income, pension tax-free) to deferred taxation (contributions tax-deductible, pension taxable). The transition lasts until 2058 – only then will pensions be 100% taxable.
Complete Table of Taxable Shares
The taxable share depends on the year retirement begins and then remains unchanged for life:
| Retirement Start | Taxable Share | Tax-Free Share |
|---|---|---|
| 2005 | 50% | 50% |
| 2010 | 60% | 40% |
| 2015 | 70% | 30% |
| 2020 | 80% | 20% |
| 2025 | 83.0% | 17.0% |
| 2026 | 83.5% | 16.5% |
| 2030 | 87.0% | 13.0% |
| 2035 | 92.0% | 8.0% |
| 2040 | 97.0% | 3.0% |
| from 2058 | 100% | 0% |
Note: Due to the Growth Opportunities Act (Wachstumschancengesetz), the annual increase in the taxable share was halved from 1 percentage point to 0.5 percentage points starting in 2023. This shifts full taxation from 2040 to 2058.
Example Calculation: Retiree Starting in 2026
Assume you retire in 2026 and receive a monthly gross pension of 1,600 €:
- Annual gross pension: 1,600 € × 12 = 19,200 €
- Taxable share (83.5%): 19,200 € × 0.835 = 16,032 €
- Pension tax-free allowance (16.5%): 19,200 € × 0.165 = 3,168 €
Your personal pension tax-free allowance (Rentenfreibetrag) is therefore 3,168 € per year. Of the annual pension of 19,200 €, 16,032 € is taxable. After deducting the basic tax-free allowance (Grundfreibetrag, 2026: 12,348 €) and further deductions such as health and long-term care insurance contributions, the actual taxable income is determined. In this example, little or no income tax would be due.
Why the Tax-Free Allowance Is Frozen
A crucial point many retirees overlook: the pension tax-free allowance is determined as a fixed euro amount in the year retirement begins and then remains unchanged for life. This has significant consequences:
- Every future pension increase is 100% taxable, as the fixed-euro allowance does not grow with it.
- Due to annual pension adjustments (most recently +4.57% in July 2024), the tax burden for existing retirees rises continuously.
- Retirees who were tax-free at the start of retirement can suddenly become taxable after several years of pension increases.
Example: Our retiree with a 3,168 € allowance keeps this amount even if their pension rises to 2,100 € per month after 10 years of adjustments. The taxable portion then grows significantly.
Tips for Retirees
- Check annually whether you are required to file a tax return – especially after pension increases.
- Use Anlage R (pension annex) and enter the data from your pension notification (Rentenbezugsmitteilung).
- Don't forget deductible expenses: health insurance contributions, donations, craftsman services, and extraordinary burdens reduce the tax burden.
Sources: § 22 No. 1 Sentence 3 Letter a Double Letter aa EStG, Growth Opportunities Act 2024, German Pension Insurance.
Calculate pension & taxes: Determine your individual tax burden in retirement with the Pension Taxation Calculator.