What new benefits are there for the disability pension?

If you can no longer work or can only work to a limited extent due to a chronic illness or accident, you may receive a disability pension from the statutory pension insurance under certain conditions. If the pension was approved before 1 July 2014, it was calculated as if the person concerned had been employed until the age of 60 with their previous average income (so-called credit period according to § 59 SGB VI).

On 1 July 2014, there were two positive changes for early retirees:

(1) For disability pensions approved since 1 July 2014, the credit period has been extended from age 60 to age 62. The pension is therefore calculated as if the person had worked until the age of 62. This results in a slightly higher pension.

(2) In addition to the duration of the credit period, the amount of earnings is also important for the disability pension. Previously, this period was calculated with the average income. Since 1 July 2014, the last four years before the onset of the disability are no longer taken into account if the salary had already decreased due to health problems. This means that giving up overtime or switching to part-time work no longer has a negative impact on the amount of the pension.

What new benefits are there for the disability pension?

What is a statutory life annuity?

A statutory annuity is a fixed payment linked to a person's lifetime. This includes old-age, disability, and survivor pensions from the statutory pension insurance, the agricultural pension fund, or professional pension schemes. These pensions are only partially taxed, with the taxable portion depending on the year the pension begins.

Taxable portion and tax-free pension amount

If you retire in 2025, the taxable portion of your pension will be 83,5%. The tax-free part of the pension is determined in the year following the start of the pension and remains unchanged for the entire duration of the pension. However, pension increases due to adjustments are fully taxed.

Notification to the tax office

Pensioners can request a “notification for submission to the tax office” from the statutory pension insurance. This notification contains the relevant data for the tax return and is automatically sent in subsequent years. An additional entry of the taxable portion in the tax return is not required.

Types of annuities

Annuities include in particular:

• Old-age pensions
• Disability pensions
• Occupational disability pensions
• Widow's/widower's pensions
• Orphan's pensions
• Parental pensions

One-off payments such as death benefits or settlements of small pensions must also be declared.

Special regulations for victims of the Nazi regime

If periods of persecution under § 1 of the Federal Compensation Act (BEG) have been taken into account in the pension calculation, inform the tax office informally. This also applies to survivor's pensions if the deceased was recognised as a victim. The tax office will check whether these pensions are tax-free.

What is a statutory life annuity?

How is the statutory pension taxed?

Since the Pension Income Act of 2005, state pensions have been taxed according to the principle of deferred taxation. This means that part of the pension is taxable, while the rest remains tax-free. The taxable portion depends on the year of retirement.

Taxation percentage:

• Retirement before 2005: 50% tax-free portion.
• Retirement 2005 to 2025: The taxable portion increases each year. For 2025, it is 83.5%.
• Retirement from 2026: The portion increases annually by 0.5 percentage points and reaches 100% from 2058.

Calculation of the pension allowance:

• In the first and second year of retirement, the pension is taxed at the set taxable rate.
• From the third year, the pension allowance remains constant and unchanged for life.
• Pension increases are fully taxable from the third year.

Income-related expenses:

• The tax office automatically deducts an income-related expenses allowance of 102 Euro.
• Higher expenses (e.g. tax advice or pension advice) can be claimed but must be proven.

Important: The pension allowance remains the same even if the pension is adjusted and refers to a fixed amount. Future pension increases must therefore be fully taxed.

How is the statutory pension taxed?

What should I enter for the pension adjustment?

When adjusting your pension, you must state the difference between your current monthly pension and the pension you received in the year following the start of your pension. The tax-free pension allowance is set in the year after your pension begins and applies for life. This allowance remains unchanged despite later pension increases, which is why the pension adjustment is fully taxable.

Determining the Pension Adjustment

The pension adjustment is the difference between the pension payments of the current year and the payments from the year in which the pension allowance was set. You can find this difference in your pension adjustment statement or ask your pension provider.

Example:

• Pension payments 2014: 6 x 1.050 Euro + 6 x 1.056 Euro = 12.636 Euro
• Pension payments 2025: 6 x 1.380 Euro + 6 x 1.420 Euro = 16.800 Euro
• Pension adjustment: 16.800 Euro – 12.636 Euro = 4.164 Euro

Tip on Pension Adjustment

Irregular changes in the pension amount, e.g. due to the crediting of other income, do not count as a pension adjustment. Only regular increases, such as the annual pension adjustment on 01.07, are relevant.

What should I enter for the pension adjustment?

What does the opening clause mean?

What does the opening clause mean?

The opening clause relates to deferred taxation and is intended to prevent unfair over-taxation. Self-employed individuals who have voluntarily paid higher contributions to an occupational pension scheme over several years can benefit from the opening clause if their contributions exceeded the contribution assessment limit of the statutory pension insurance.

Contribution assessment limit and voluntary payments

The contribution assessment limit is recalculated annually and determines the income up to which pension insurance contributions are levied. For income above this limit, contributions are usually not payable unless voluntary payments are made – for example, by self-employed individuals.

Tax issues

A self-employed person has voluntarily paid higher contributions from their taxed income and receives a higher pension in retirement. Without the opening clause, this pension would have to be taxed at the full tax rate (in 2025: 83,5%), which could lead to excessive taxation.

Using the opening clause

To avoid this, the pensioner can have the pension divided into a voluntary and a statutory part, provided they paid the higher contributions at least ten years before 31.12.2004. The portion of the pension based on the increased contributions is then taxed at the more favourable yield rate.

Example

A pensioner has been receiving a pension of 1.500 Euro per month since the age of 65. If they can prove that 30% of the pension is based on increased contributions, this division is made:

• 70% of the pension (1.050 Euro) is taxed normally.
• 30% of the pension (450 Euro) is taxed at a yield rate of 18%.

Result: Only 8.280 Euro need to be taxed, instead of 10.440 Euro without the opening clause.

Calculation of the yield rate

The yield rate depends on the age of the pensioner at the start of the pension payments:

• 64 years: 19%
• 65-66 years: 18%
• 67 years: 17%

Tip for using the opening clause

Those affected should ensure when applying for a pension that the part of the pension based on the increased contributions is correctly divided. The certificate from the pension insurance provider contains all the necessary information for the tax office.

What does the opening clause mean?

How is my pension from an occupational pension scheme taxed?

Pensions from occupational pension schemes are part of the so-called basic provision and are taxed like pensions from the statutory pension insurance. The following points are important:

Taxable portion

The taxable portion of the pension depends on the year the pension begins. For pensions starting from 2025, it is 83,5%. This percentage increases annually by half a percentage point until it reaches the full 100% in 2058 (§ 22 No. 1. a) aa) EStG, amended by the "Growth Opportunities Act").

Pension allowance

In the second year of receiving the pension, the remaining amount after deducting the taxable portion is set as the personal pension allowance. This amount remains unchanged and tax-free for life.

Taxation from the third year

From the third year of receiving the pension, the pension is taxable after deducting the allowance and the standard allowance for income-related expenses of 102 Euro. Any pension increase is fully taxable.

Income-related expenses

The tax office automatically applies an allowance of 102 Euro. Higher expenses such as tax consultancy fees or pension advisory costs can be additionally claimed but must be proven.

Note: The pension allowance remains the same for life. For pension increases, the amount above the allowance is fully taxable.

How is my pension from an occupational pension scheme taxed?

How is the mother's pension taxed?

The so-called mothers' pension is a pension increase due to extended child-rearing periods for children born before 1992.

It has been granted since July 2014 and currently amounts to up to 2,5 earnings points per child.

Mothers' pension and tax law

For tax purposes, the mothers' pension is not considered a regular pension adjustment but an extraordinary re-determination. Therefore, the pension allowance is recalculated based on the start of the pension and the pension values in the following year.

Example:

A pensioner who retired in 2007 receives an additional 28,61 Euro per month (West) for one child from July 2014. For the year 2014, this amounts to 171,66 Euro (6 × 28,61 Euro). The taxable portion is 54%, the tax-free portion is 46%. The increase in the pension allowance is calculated based on the average pension value in 2008 (26,42 Euro). This results in an additional pension allowance of 72,92 Euro (6 × 26,42 Euro × 46%).

Previously, the allowance was simply calculated from the additional pension amount. Today, the calculation is more differentiated, which often leads to a lower tax-free amount.

Mothers' pension from 2019

Since 01.01.2019, the child-rearing period for children born before 1992 has been extended again – from 24 to 30 months. This increases the entitlement to 2,5 earnings points per child.

Regulations:

• Pension start from 01.01.2019: Automatic increase by 0,5 earnings points.
• Existing pensions: Surcharge of 0,5 earnings points from January 2019.
• Pensioners who had no entitlement in 2014 can now be considered.
• In special cases (e.g. adoption, return from abroad), there is a right to apply (§ 307d para. 5 SGB VI).

An application is generally not required, the adjustment is made automatically by the pension insurance.

BFH ruling on recalculation (X R 24/20)

The Federal Fiscal Court ruled that a new calculation of the pension allowance is required for pension increases due to the mothers' pension. The mothers' pension is retroactively taken into account from the start of the pension, based on the pension values at that time.

The tax offices are now implementing this calculation method. If the pension allowance still seems too low, it is advisable to consult the relevant tax office.

Conclusion

The tax treatment of the mothers' pension is complex but can affect the taxable portion of the pension. A correct calculation of the pension allowance is crucial. Affected pensioners should carefully check their tax assessments.

How is the mother's pension taxed?

How is my pension from an agricultural pension fund taxed?

Taxation of Pension from an Agricultural Pension Fund

The pension from agricultural pension funds is taxed similarly to the state pension. Here are the key points:

Taxable Portion

Taxation is based on the taxable portion, which depends on the start date of the pension. This portion increases gradually. For pensions starting from 2025, it is 83,5% and rises annually to 100% by 2058 (§ 22 No. 1. a) aa) EStG, amended by the "Growth Opportunities Act").

Pension Allowance

In the second year of retirement, the tax-free portion of the pension is set as the pension allowance. This remains unchanged for life.

Taxation from the Third Year

From the third year, the pension is taxed after deducting the pension allowance and a standard allowance for income-related expenses of 102 Euro. Pension increases are fully taxable.

Income-Related Expenses

The tax office automatically considers 102 Euro as income-related expenses. You can claim higher expenses, such as for tax advice or pension advice, but you must provide proof.

Note: The pension allowance remains the same for life. Therefore, pension increases must be fully taxed.

How is my pension from an agricultural pension fund taxed?

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.

What does the Retirement Income Act 2005 regulate?

What income-related expenses can I claim as a pensioner?

Even as a pensioner, you can claim expenses related to your pension as income-related expenses in your tax return. If your income-related expenses total less than 102 Euro, it is not worth entering them. The tax office automatically applies an income-related expenses allowance of 102 Euro, which is immediately deducted from your income. This allowance is applied jointly for all pensions and all income that must be declared under other income. It is an annual amount that is not reduced, even if the conditions did not apply for the entire year or if there was no income for the whole year. The income-related expenses allowance is personal and is available to each spouse separately as soon as they have the relevant income.

Tip: If you have higher expenses exceeding the allowance of 102 Euro, it is definitely worth entering them. However, you should also have the evidence ready and enclose it with your tax return. If you have expenses for a tax advisor, the tax office will only recognise the costs as income-related expenses if they are related to your pension. Therefore, ask your tax advisor to specify separately in their invoice the part that directly relates to your pension.

You can claim the following as income-related expenses:

• pension advisor,
• lawyer in pension disputes,
• tax advisor (only for form R), and also
• costs related to applying for a pension (travel expenses, office supplies, postage, telephone costs)
• court fees if the case concerns your pension
• union fees you pay as a pensioner
• flat-rate account maintenance fee of 16 Euro per year

What income-related expenses can I claim as a pensioner?

How is interest on pension arrears treated?

Pensions are often approved at a later date and then paid retroactively in a larger sum, for example, due to legal disputes or after clarification of the facts. The insurance provider must pay additional interest on a pension back payment - in the case of pensions from the statutory pension insurance, this is 4% p.a. (§ 44 Abs. 1 SGB I).

This back payment interest is taxable as "income from capital assets" (BFH ruling of 9.6.2015, VIII R 18/12; also BMF letter of 4.7.2016, IV C 3-S 2255/15/10001).

Previously, the tax authorities treated the back payment interest as "other income" and taxed it, like the pensions and pension back payments of the basic provision (statutory pension, Rürup pension, pension from an occupational pension scheme), with the taxable portion as "other income". The taxable portion is determined by the year the annuity begins, e.g. in 2015 with 70%.

How is interest on pension arrears treated?