Full deduction of pension expenses from 2023

Contributions to the statutory pension insurance - along with other contributions to basic provision, such as occupational pension schemes and Rürup pension insurance - are deductible as special expenses under pension expenses (§ 10 para. 1 no. 2a EStG).

Pension contributions are fully deductible up to a certain maximum amount, but they actually only have a tax-reducing effect with a certain percentage until 2025. This percentage changes annually, starting at 60% in 2005 and rising to 100% by 2025 (§ 10 para. 3 EStG).

• In 2021, pension contributions are fully deductible up to 25.787 Euro for singles and 51.574 Euro for married couples. Of this, 92% is tax-deductible, i.e. a maximum of 23.724 Euro or 47.448 Euro.
• In 2022, pension contributions are fully deductible up to 25.639 Euro for singles and 51.278 Euro for married couples. Of this, 94% is tax-deductible, i.e. a maximum of 24.101 Euro or 48.202 Euro.

From 2023 onwards – and not from 2025 – pension expenses are 100 percent deductible as special expenses. This increases the deductible expenses by 4 percentage points in 2023 and by 2 percentage points in 2024 (§ 10 para. 3 sentence 6 EStG, amended by the "Annual Tax Act 2022").

The change is also necessary in light of the Federal Fiscal Court rulings of 19 May 2021 (X R 20/19 and X R 33/19), as this measure can contribute in the first step to avoiding "double taxation" of pensions from the basic provision in the long term. In its rulings, the BFH once again confirmed the current design of pension taxation as constitutional. In the cases decided, there was no "double taxation" of retirement income. However, future pension cohorts could be affected, according to the BFH.

With its decisions of 19 May 2021, the highest German tax court for the first time set out the specific calculation parameters for any "double taxation" of pensions from the basic provision. The newly announced legislative changes are intended to help avoid possible "double taxation" in the future.

(2022): Full deduction of pension expenses from 2023

Which pension contributions can I enter as pension expenses?

Pension expenses include contributions to the state pension insurance, the Rürup pension, the agricultural pension fund, and the occupational pension scheme. Employees can enter contributions to agricultural pension funds and contributions to a voluntary state pension insurance.

Since the employer's contribution to the state pension insurance is also included, the special expenses are much lower. Pension expenses can be claimed up to a certain maximum amount. Since 2015, the maximum amount has been linked to the maximum contribution in the miners' pension insurance, rounded up to a full euro amount.

In 2022, pension contributions are deductible up to 25.639 Euro for single persons and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94%, i.e. a maximum of 24.101 Euro or 48.202 Euro.

Other insurance expenses are deductible up to a total of 1.900 Euro if the taxpayer receives tax-free contributions to their health insurance or allowances for medical expenses. If they do not receive these tax-free contributions, they can claim other insurance expenses up to 2.800 Euro.

(2022): Which pension contributions can I enter as pension expenses?

Which contributions to the statutory pension insurance can I declare?

Contributions to statutory pension insurance, referred to as Deutsche Rentenversicherung Bund and Deutsche Rentenversicherung Knappschaft-Bahn-See since 1 October 2005, are deductible as pension expenses under special expenses.

You can also deduct the following as contributions to statutory pension insurance:

• Mandatory contributions you make as a self-employed person to a statutory pension insurance, e.g. as a craftsman, teacher, educator, carer, midwife, or if you work in a domestic trade.
• If you are voluntarily subject to insurance on your own application.
• If you pay contributions to the Künstlersozialkasse as an artist, journalist, or author, you can declare your own share of the contributions, but not the subsidies from the Künstlersozialkasse.
• As a self-employed person, you can also make voluntary contributions to maintain disability insurance. You can declare these contributions.
• If you voluntarily supplement your training period with contributions to the statutory pension insurance, you can declare these contributions.
• If you compensate for a pension reduction that you would incur if you took your pension early, you can declare the contributions.
• Contributions to a statutory pension insurance abroad are also deductible here.

(2022): Which contributions to the statutory pension insurance can I declare?

How are your contributions to the statutory pension insurance taken into account?

Contributions to the statutory pension insurance consist of the employee and employer contributions. The employer's contribution to the statutory pension insurance is also considered deductible pension expenses.

Pension expenses can be claimed as special expenses up to a certain maximum amount, but they only have a tax-reducing effect at a certain deduction rate. This deduction rate will increase to 100 per cent by 2023.

In 2022, pension contributions are fully deductible up to 25.639 Euro for single persons and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94 per cent, i.e. a maximum of 24.101 Euro or 48.202 Euro.

Your contributions to the statutory pension insurance are half paid by your employer, and you pay the rest. From your pension expenses, which are only partially deductible, you must therefore deduct the employer's contribution in full.

You pay 5.000 Euro into the pension insurance, and your employer pays the same amount. Of this 10.000 Euro annual contribution, your deductible share (94 per cent) is 9.400 Euro. However, since you have already received the employer's contribution tax-free, you must deduct it again, leaving 4.400 Euro that actually have a tax-reducing effect.

Note: The Federal Fiscal Court considers the statutory transitional regulations in connection with pension taxation and the deduction of pension expenses to be constitutional (BFH rulings of 19.5.2021, X R 33/19 and X R 20/21). However, it has pointed out that this does not apply to future pensioners. There could be a risk of double taxation.

The Federal Government has announced that the full deductibility of pension contributions during the working phase, planned for 2025, will be brought forward to 2023.

(2022): How are your contributions to the statutory pension insurance taken into account?

When am I compulsorily insured in the statutory pension insurance?

Mandatory members of the statutory pension insurance include:

• All regular employees,
• Insured persons during the three-year child-raising period,
• Employees in marginal employment who do not opt out of pension insurance,
• Public sector employees,
• Disabled employees in sheltered workshops and similar institutions,
• Unemployed persons receiving state support,
• Self-employed persons subject to pension insurance.

Are you exempt from statutory pension insurance?
If you have applied for and been granted exemption from statutory pension insurance, please enter the contributions to a substitute life insurance, for voluntary continuation of insurance in the statutory pension scheme, or contributions you pay to the insurance group or pension group of your profession. You must deduct any tax-free employer contributions or refunds beforehand.

Voluntary contributions: Here you can also deduct the contributions to the statutory pension insurance that you make voluntarily. This applies in the case of higher or continued insurance or if you pay voluntary contributions to maintain entitlement to a disability pension. If you, as a mini-jobber, do not exercise your option to be exempt from pension insurance, please also enter your employee share.

Voluntary contributions are also subject to the maximum amount for pension expenses. In 2022, pension contributions are deductible up to 25.639 Euro for singles and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94%, i.e. a maximum of 24.101 Euro or 48.202 Euro.

The Federal Fiscal Court considers the statutory transitional regulations in connection with pension taxation and the deduction of pension expenses to be constitutional (BFH rulings of 19.5.2021, X R 33/19 and X R 20/21). However, it has pointed out that this does not apply to future pensioners. There could be a risk of double taxation.

The Federal Government has announced that the full deductibility of pension contributions during the working phase, planned for 2025, will be brought forward to 2023.

(2022): When am I compulsorily insured in the statutory pension insurance?

What are contributions to agricultural pension funds?

These are contributions paid by a farmer for themselves, their spouse, and possibly for family members working on the farm, to build up their own funded pension scheme. Employees can enter contributions to agricultural pension funds and contributions to a voluntary statutory pension insurance. Contribution subsidies must be deducted.

In 2022, pension contributions are fully deductible up to 25.639 Euro for single persons and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94%, i.e. a maximum of 24.101 Euro or 48.202 Euro.

The Federal Fiscal Court considers the statutory transitional regulations in connection with pension taxation and the deduction of pension expenses to be constitutional (BFH rulings of 19.5.2021, X R 33/19 and X R 20/21). However, it has pointed out that this does not apply to future pensioners. There could be a risk of double taxation.

The Federal Government has announced that the full deductibility of pension contributions during the working phase, planned for 2025, will be brought forward to 2023.

(2022): What are contributions to agricultural pension funds?

What are contributions to occupational pension schemes?

Contributions to occupational pension schemes can be made by members of the liberal professions. This includes, for example, doctors, lawyers and notaries, tax advisors, or architects. However, only contributions to such occupational pension schemes whose benefits are comparable to those of the statutory pension insurance provider are accepted. Employees can enter contributions to agricultural pension funds and contributions to a voluntary statutory pension insurance.

In 2022, pension contributions are deductible up to a total of 25.639 Euro for single persons and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94%, i.e. a maximum of 24.101 Euro or 48.202 Euro.

The Federal Fiscal Court considers the statutory transitional regulations in connection with pension taxation and the deduction of pension expenses to be constitutional (BFH rulings of 19.5.2021, X R 33/19 and X R 20/21). However, it has pointed out that this does not apply to future pensioner cohorts. There could be a risk of double taxation.

The Federal Government has announced that the full deductibility of pension contributions during the working phase, planned for 2025, will be brought forward to 2023.

(2022): What are contributions to occupational pension schemes?

What does "voluntary statutory pension insurance" mean?

Anyone exempt from the statutory pension insurance can make voluntary contributions to the statutory pension insurance and declare these in their tax return. This applies, for example, to the self-employed, civil servants, clergy, or housewives.

You cannot enter your regular contributions to statutory pension and nursing care insurance here, as these are not voluntary contributions. If you pay contributions to a state-subsidised private pension scheme, please enter them under the item “Riester pension”.

(2022): What does "voluntary statutory pension insurance" mean?

How should I declare contributions to the statutory pension insurance as a part-time employee (Minijob)?

A mini job is a form of marginal employment. The condition is that the mini jobber's salary is below 450 Euro (until 30.9.2022) or 520 Euro (from 1.10.2022) per month. Mini jobbers are subject to compulsory insurance in the statutory pension scheme. However, they can apply for an exemption. If you do not make use of the exemption, the employer pays the flat-rate contributions to the pension scheme amounting to 15% (in the commercial sector) or 5% (in the household sector), and the mini jobber must pay the difference to the normal pension insurance contribution rate from their own funds.

There is an option for the mini jobber to claim the employer's contributions and their own employee contributions as pension contributions. If they exercise this option, both the employer's and the employee's contributions are added to the pension contributions.

However, in the past, an entry was rather disadvantageous for commercial mini jobs. This was because the employer's contribution was initially only taken into account to a limited extent and then deducted again at 100%. As the percentage deduction is slowly but surely approaching the 100% mark, this is no longer the case without exception.

Please enter the employer's contribution to the statutory pension insurance for marginal employment subject to flat-rate taxation in Lohnsteuer kompakt on the page "Vorsorgeaufwendungen > Altersvorsorge > Sonstige Pflichtversicherungen".

(2022): How should I declare contributions to the statutory pension insurance as a part-time employee (Minijob)?

What is a Rürup pension?

Pension models are often named after their inventors. The Riester pension is named after the former Labour Minister Walter Riester. The Rürup pension is named after the economist Hans-Adalbert Rürup. It is very similar to the state pension insurance, but it is funded rather than pay-as-you-go. The money paid into the private Rürup contract is not immediately paid out to pensioners but is saved and earns interest. The official name for the Rürup pension is "private basic pension". The return on this private pension insurance comes from the interest on the contributions by the provider with whom it is taken out.

There is also the advantage that it is tax-advantaged by the state. The aim of the Rürup pension: The insured person receives a monthly pension for life, starting at the earliest at the age of 60. For contracts concluded from 1 January 2012, the insurance contract may not provide for the payment of the annuity before the age of 62. As it is linked to the life of the contributor, this form of insurance is also called an annuity insurance.

A Rürup pension insurance is taken out with a private insurance company. Policyholders pay their contributions monthly or annually, and one-off payments are also possible. They are particularly tax-advantaged.

(2022): What is a Rürup pension?

What forms of Rürup pension are available?

The Rürup policy can be taken out as either a traditional or unit-linked life insurance. In both cases, the entitlement is a monthly pension payment, i.e., an annuity. Traditional life insurance invests the savings portion diversely in the capital market, mainly in bonds. The policyholder receives a profit share from the returns. The guaranteed interest rate for contracts concluded between 2012 and 2014 is 1.75 percent, for contracts concluded from 1 January 2015 only 1.25 percent, from 1 January 2017 the guaranteed interest rate has fallen to 0.9 percent and from 1 January 2022 it is only 0.25 percent.

With unit-linked life insurance, the savings amount is invested in investment funds. Therefore, there is no guaranteed interest rate as with the traditional policy. The risk is thus somewhat higher. However, an above-average return is also possible. The Rürup pension is also secure in the event of unemployment. Since no money may be paid out before the start of the pension, the savings are not considered disposable assets under the Social Security Code and cannot be seized during the accumulation phase.

The ongoing contributions and the accumulated capital are also not counted towards unemployment benefit II. In the pension phase, the payments - like all others - are then of course subject to seizure, at least above the non-seizable portion. Until then, periods during which no contributions are made for a longer period do not prevent tax incentives. However, the contract with the insurance company must also allow for a contribution pause.

(2022): What forms of Rürup pension are available?

Who is the Rürup pension suitable for?

In principle, a Rürup pension is suitable for anyone who wants to save for retirement with tax benefits. However, it is particularly interesting for those who are not covered by statutory pension insurance and who cannot use a Riester or company pension: for example, the self-employed, freelancers, and business owners. The Rürup funding is also attractive for high earners.

With this type of private pension provision, policyholders do not receive bonuses like with the Riester pension. The state support consists of tax advantages, as Rürup contributions can be claimed as special expenses in the tax return.

However, the tax incentives for contributions are subject to conditions. This is to ensure that the Rürup contract is genuinely used for retirement provision. For example, the monthly pension may not be paid out before the age of 60. For contracts concluded from 1 January 2012, the insurance contract may only provide for the payment of the annuity upon reaching the age of 62. Furthermore, the acquired entitlements cannot be pledged or sold. The tax incentives for the private basic pension relate to the contributions paid, as with other pension insurance schemes. Like payments to the statutory pension fund or professional pension schemes, they can be claimed as special expenses in the income tax return.

(2022): Who is the Rürup pension suitable for?

How can I claim contributions to a Rürup pension in my tax return?

The tax incentives for the private basic pension (Rürup pension) apply to the contributions paid, although maximum amounts apply.

Single persons may deduct the contributions as special expenses - possibly together with contributions to the statutory pension insurance and to the occupational pension scheme - up to a certain maximum amount, whereby they then only have a tax-reducing effect with a certain deduction rate.

However, it is important to know: There is a transitional phase until 2023, after which the full benefit will be granted by deducting the full contributions.

Why is this the case? The Retirement Income Act of 2005 gradually increases the taxation of pensions. In return, the opportunities for policyholders to deduct their expenses for private pension provision from tax are increasing.

The deduction rate increases by two percentage points each year until it reaches 100 percent. Thus, the contributions will be increasingly promoted in the coming years until the tax exemption from 2023.

In 2022, pension contributions are deductible up to 25.639 Euro for single persons and 51.278 Euro for married couples. However, these contributions only have a tax-reducing effect of 94%, i.e. a maximum of 24.101 Euro or 48.202 Euro.

In return, the taxation of pension payments will increase until 2040: In the 2010 tax year, 60 percent of the pension from statutory and private insurance is taxed, the rest of the pension is still tax-free. By 2020, taxation will increase by two percentage points each year and then by one percentage point until 2040. Then both the statutory pension and the Rürup pension, as well as any private provision, will be fully taxed.

The Federal Fiscal Court considers the statutory transitional regulations in connection with pension taxation and the deduction of pension expenses to be constitutional (BFH rulings of 19.5.2021, X R 33/19 and X R 20/21). However, it has pointed out that this does not apply to future pensioners. There could be a risk of double taxation.

The Federal Government has announced that the full deductibility of pension contributions during the working phase, originally planned for 2025, will be brought forward to 2023.

(2022): How can I claim contributions to a Rürup pension in my tax return?

Is a Rürup pension worthwhile in combination with supplementary insurance?

Many insurance companies offer additional products with a Rürup pension insurance. For example, a policy can be combined with disability or dependants' insurance. Consumer protection groups and the German Insurance Federation generally advise against such combinations. Although this can be more tax-efficient than individual insurances, the premiums for disability insurance are often higher in combination than for individual products.

Dependants' insurance as an addition is also possible. This can provide for your relatives in the event of death, as they receive nothing from the Rürup pension after the policyholder's death. There is no pension guarantee period with Rürup, during which money is paid to relatives for an agreed period after your death. However, in the event of a divorce, the claims from the dependants' insurance expire.

These supplementary contracts do not conflict with the tax requirements for a Rürup policy and are therefore also subsidised. However, the proportion of the total contribution for additional products must not be higher than the proportion for the pension provision itself. Additional insurances are also offered that guarantee a refund of contributions if the insured person dies before retirement. However, they are excluded from tax subsidies.

(2022): Is a Rürup pension worthwhile in combination with supplementary insurance?