Pension allowance (EStG)

Among the income from employment and salary and benefits from previous services include an age limit, reduced earning capacity or as a survivor's benefit (= pensions) after having reached § 19 para. 1 Income Tax Act . Typical pension payments are, for example, civil servants' pensions .

From pension payments, an amount calculated according to a percentage, the pension allowance , and a surcharge on the pension allowance remain tax-free ( Section 19 (2) sentence 1 EStG). The pension allowance is only valid for a limited time: The Retirement Income Act of July 5, 2004 regulates that the pension allowance over a period of 35 years is the same as the increase in the taxable portion of the pensionsis melted. For the individual taxpayer, however, the pension exemption is always fixed at the same percentage as at the start of the pension. According to this, from 2040 there will no longer be the pension allowance for new entrants to pensioners, on the other hand, social security pensions will be fully taxed from this point in time.

The pension allowance was introduced to compensate for the unequal treatment between pensions and pensions and was increased several times; it loses its justification if, in the final state of the new pension taxation, pensions are taxed 100 percent downstream. The reorganization of the taxation of old-age pensions provides for the changeover to the new taxation system, both for reasons of social compatibility and for budgetary reasons, not in one step, but in stages over a period of 35 years. After starting with a taxable portion of 50 percent of the pensions in the first year of 2005, the taxable portion of the pensions increases year by year for each newly added pension year until 100 percent is reached in 2040. The pension allowance must basically be reduced to the same extent, because the unequal preferential treatment of pensions in their taxation decreases with each year and thus also the need to compensate for pension payments to the previous extent.

The relevant percentage for the tax-exempt part of the pension and the maximum amount of the pension exemption as well as the supplement to the pension exemption are determined from 2005 onwards after the year in which the pension commences. They reduce for each new year retiring from 2006 onwards.

From 2005, the employee lump sum is no longer applicable to pension payments. Instead, as with pensions, a flat-rate amount of 102 EUR for income-related expenses is taken into account. To compensate for the discontinuation of the employee lump sum, a surcharge is added to the pension allowance (see above), which is also reduced for each new year retiring from 2006 onwards.

The relevant percentage, the maximum amount of the pension allowance and the supplement to the pension allowance can be found in the table in accordance with Section 19 (2) sentence 3 EStG.

The assessment basis for the pension allowance is

a) if the pension starts before 2005, twelve times the pension for January 2005,
b) if the pension commences from 2005, twelve times the pension for the first full month,

plus expected special payments in the calendar year to which a legal claim exists at this point in time. The pension allowance and the supplement to the pension allowance apply for the entire term of the pension payment. Notwithstanding this, the pension allowance and the supplement to the pension allowance must be recalculated if the pension payment increases or decreases due to the application of credit, suspension, increase or reduction regulations. For each full calendar month for which no pension payments are paid, the pension allowance and the supplement to the pension allowance are reduced by one twelfth each in this calendar year. Payments due to reaching an age limit are only considered as pension payments if the taxpayer has reached the age of 63 or, if he is severely disabled, he has reached the age of 60.

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BT-Drs.15 / 2150, Draft Law on Retirement Income