What does the 2005 Pension Income Act regulate?
The Pension Income Act of 2005 regulates the taxation of pensions and affects both pensioners who were already retired in 2005 and future pensioners. The tax burden for new pensioners increases every year, but there are also benefits for employees through tax-advantaged pension schemes.
Tax-advantaged pension schemes
In addition to the statutory pension insurance, private pension insurance is also recognised as a pension scheme, particularly the basic pension or Rürup pension. Contributions to private pension insurance are only tax-advantaged if they provide a lifelong pension. The insured person must be at least 60 years old at the start of the pension. For contracts from 2012 onwards, pension payments may not begin before the age of 62. This ensures that the products are used exclusively for retirement provision.
Taxation of pensions
Since 2005, 50% of pension income has been taxed. Between 2006 and 2020, the taxable portion of pensions increased by two percentage points each year, and from 2021 by only one percentage point per year. However, from 2023, the taxable portion for new pensioners will only increase by half a percentage point annually. Pensions starting from 2024 will have a taxable portion of 83%. The full taxable portion of 100% will be reached for the first time in 2058.
Ruling on double taxation
In May 2021, the Federal Fiscal Court (BFH) ruled that double taxation of pensions is only possible in individual cases. The BFH considers the basic system of pension taxation to be lawful, including the limited deduction of pension contributions and the partial tax exemption of pensions. In November 2023, the Federal Constitutional Court (BVerfG) dismissed the constitutional complaints against the BFH rulings, as they were not sufficiently substantiated.
What does this mean for those affected?
It is likely that the provisional notes in income tax assessments will soon be removed. Anyone who believes that double taxation applies in their case should continue to appeal against current tax assessments and provide a calculation of double taxation. Appropriate evidence, such as insurance records or tax assessments from the contribution phase, must be attached to the appeal.
The BFH is currently re-examining possible double or excessive taxation of pensions (Ref. X R 9/24). Pensioners should therefore maintain or lodge new appeals.
