What is a pension?
According to the definition in sect. 229 of the Social Code Book V (SGB V), pension benefits are income comparable to pensions (pension payments), insofar as they are earned due to a reduction in earning capacity or for old-age or survivors' pensions.
Pension benefits include:
- Pensions from insurance and pension institutions established for members of certain professions (e.g., doctors, architects, lawyers),
- Pensions of the company pension scheme including the supplementary pension in the civil service and the supplementary pension of the miners,
- Remuneration from the pensions of deputies, parliamentary state secretaries and ministers,
- Pension payments from a public-law employment relationship or from an employment relationship with entitlement to pension payments in accordance with civil service regulations or principles.
What is a pension?
Are my pension payments taxable?
Pension payments (retirement pay, widow's pension, orphan's pension, maintenance payments or similar) are considered income from employment under the Income Tax Act and are subject to the wage tax deduction procedure upon payment.
Since 2013, instead of the wage tax card, the pension office can electronically retrieve your wage tax deduction details from a tax administration database using your tax identification number and date of birth via ELSTAM (Electronic Wage Tax Deduction Features).
The taxation of pension payments is generally the same as that of salaries. The only difference is that an additional pension allowance is granted.
Since 01.01.2005, the taxation of retirement income (pension payments and annuities) has been re-regulated by the Retirement Income Act – AltEinkG. The core element of the Retirement Income Act is the transition from the taxation of contributions paid into retirement provision during the working phase ("upstream" taxation) to the taxation of benefits during the payout phase ("downstream" taxation). This is being implemented gradually during the transition period up to 2040; thereafter, civil service pensions and annuities will be treated equally for tax purposes.
The previously granted pension allowance is reduced annually, i.e. the later the pension begins, the lower the allowance until no pension allowance is granted for pensions starting from 2040. The flat-rate allowance for income-related expenses is 102 Euro, as with pension income.
The decisive factor for the amount of the (lifetime) allowance and the supplementary bonus to the pension allowance is the year the pension begins. The relevant percentage, the maximum amount of the pension allowance and the bonus to the pension allowance can be found in the table mentioned in § 19 para. 2 Income Tax Act (EStG).
The pension allowance and the bonus to the pension allowance apply for the entire duration of the pension payments. Regular adjustments to the pension payments do not lead to a recalculation.
However, a recalculation must be made if the pension payments increase or decrease due to the application of credit, suspension, increase, or reduction regulations. In the calendar year of the change, the highest pension allowance and bonus to the pension allowance apply.
Are my pension payments taxable?
