What is the regulation of the income tax legislation (Alterseinkünftegesetz) of 2005?

The Retirement Income Act regulates the taxation of pensions. Everyone is affected, both pensioners who were already retired in 2005 and all future pensioners. The tax burden on new pensioners increases from year to year - but at the same time the benefits for employees are also growing.

Tax relief for old-age provision

In addition to the statutory pension insurance, private pension insurances are also recognised as old-age provision (so-called basic pension or Rürup pension). However, contributions to private pension insurance schemes are only tax-privileged if the insurance is aimed at a life-long pension of the taxpayer. In addition, the insured person must be at least 60 years of age at the time of commencement of the pension payment. If the contract is concluded from 2012, pension payments may not begin until the age of 62. This ensures that these are pension products for old-age provision. In addition, the pension entitlements may not be transferable, cannot be pledged as collateral, cannot be sold and cannot be capitalised. In addition, the sum insured must be paid out as a life annuity, one-off payments are generally prohibited. However, the tax-privileged provision products can be supplemented with supplementary insurance - for example, occupational disability insurance.

Investment products that do not necessarily serve retirement provision purposes are not tax-privileged. As a rule, these are freely available capital investments, which also include endowment insurance policies. An exception to this rule are endowment life insurance policies concluded prior to January 1,2005. They remain tax-free.

For pensioners, this means the following: Since 2005,50 percent of retirement income has been taxed. From 2006 to 2020, the taxable portion of pensions will increase by two percentage points per annum, and from 2021, the portion will only increase by one percentage point per annum. In 2040,100 percent of pensions will be taxable, whereas contributions by employees to old-age provision will be largely tax-free.

Also regulated in the Retirement Income Act: Temporary pensions, such as reduced earning capacity pensions, and non-term pensions, such as retirement pensions, have been treated in the same way for tax purposes since 2005. And pensions from insurance policies, which are tax-privileged in the savings phase, are taxable in the payout phase.