Pension taxation in 2025: 72 per cent of pension benefits are subject to income tax

Anyo­ne recei­ving a pen­si­on in Ger­ma­ny needs to come to terms with an issue that many unde­re­sti­ma­te: the obli­ga­ti­on to pay inco­me tax on pen­si­on inco­me. The Fede­ral Sta­tis­ti­cal Office (Desta­tis) has now published figu­res for the year 2025 which show just how far the tax bur­den on pen­sio­ners has alre­a­dy increased.

Key figures at a glance

In 2025, around 22.5 mil­li­on peo­p­le in Ger­ma­ny recei­ved bene­fits from sta­tu­to­ry, pri­va­te or occu­pa­tio­nal pen­si­on sche­mes. The total amount of the­se pay­ments stood at around 423 bil­li­on euros. Com­pared with the pre­vious year, the num­ber of pen­sio­ners rose by around 168,000, whilst the amounts paid out increased by 5.1 per cent.

Of the­se 423 bil­li­on euros, 72 per cent – or around 304 bil­li­on euros – was clas­si­fied as inco­me sub­ject to inco­me tax. Sin­ce 2015, the avera­ge tax rate has the­r­e­fo­re risen by 16.4 per­cen­ta­ge points.

Why does the tax burden increase every year?

The reason lies in the so-cal­led Reti­re­ment Inco­me Act, which came into force in 2005. Sin­ce then, the­re has been a gra­du­al shift from upfront taxa­ti­on to defer­red taxa­ti­on. Put sim­ply, this means that in the past, pen­si­on con­tri­bu­ti­ons were paid from inco­me that had alre­a­dy been taxed, whilst pen­si­on pay­ments remain­ed lar­ge­ly tax-free. Today, con­tri­bu­ti­ons are incre­asing­ly exempt from tax, but the sub­se­quent pen­si­on bene­fits are taxed.

The pro­por­ti­on of one’s pen­si­on that is taxa­ble depends lar­ge­ly on the year in which one starts recei­ving it. The later someone reti­res, the hig­her the taxa­ble por­ti­on. In addi­ti­on, gene­ral pen­si­on increa­ses are ful­ly taxa­ble. This can mean that pen­sio­ners beco­me lia­ble for tax over time, even though their per­so­nal cir­cum­s­tances have hard­ly changed.

Ori­gi­nal­ly, the tran­si­ti­on peri­od was due to be com­ple­ted by 2040. Howe­ver, the Growth Oppor­tu­ni­ties Act of 27 March 2024 exten­ded this peri­od to 2058. It is only from then onwards that new­ly com­men­ced sta­tu­to­ry pen­si­ons will be ful­ly sub­ject to inco­me tax.

Not every pensioner actually pays tax

A high pro­por­ti­on of taxa­ble inco­me does not auto­ma­ti­cal­ly mean that tax actual­ly has to be paid. If, after deduc­ting inco­me-rela­ted expen­ses and spe­cial allo­wan­ces, the taxa­ble inco­me falls below the basic allo­wan­ce, no tax is due. Tho­se who live exclu­si­ve­ly on a small pen­si­on are often exempt from tax.

The most recent figu­res on how many pen­sio­ners actual­ly pay inco­me tax date from 2022. At that time, the figu­re stood at around 42 per cent of all pen­sio­ners, or appro­xi­m­ate­ly 9.34 mil­li­on peo­p­le. For 80 per cent of the­se tax­pay­ers, their pen­si­on was sup­ple­men­ted by other sources of inco­me, such as pen­si­on pay­ments, wages or ren­tal inco­me. For mar­ried cou­ples asses­sed joint­ly, the partner’s inco­me may also affect the tax liability.

What does this mean for pensioners in practice?

Anyo­ne recei­ving a pen­si­on and who has addi­tio­nal inco­me should check whe­ther they need to sub­mit an inco­me tax return. Par­ti­cu­lar­ly if the pen­si­on amount has increased in recent years as a result of adjus­t­ments, they may beco­me lia­ble for tax for the first time. To obtain a relia­ble assess­ment of your per­so­nal situa­ti­on, it is advi­sa­ble to seek advice from a tax advi­ser or a soli­ci­tor spe­cia­li­sing in tax law.