(2025)
What does the Retirement Income Act 2005 regulate?
The Retirement Income Act of 2005 regulates the taxation of pensions and affects both pensioners who retired in 2005 and future pensioners. The tax burden for new pensioners increases each 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, 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 retirement income has been taxed. Between 2006 and 2020, the taxable portion of pensions increased annually by two percentage points, and from 2021 by only one percentage point per year. From 2023, however, the taxable portion for new pensioners will only increase by half a percentage point annually. Pensions starting from 2025 will have a taxable portion of 83,5%. 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 expenses and the partial tax exemption of pensions. The Federal Constitutional Court (BVerfG) dismissed the constitutional complaints against the BFH rulings in November 2023, as they were not sufficiently substantiated.
What does this mean for those affected?
The Federal Ministry of Finance has ordered that tax assessments regarding "pension taxation" are no longer to be issued provisionally (BMF letter dated 10.03.2025, IV D 1 - S 0338/00083/001/081 and IV C 4 - S 2255/00236/011/001).
However: 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 objections.
