Citizens' insurance, share pensions, additional private provision: pensions policy was seen as a sticking point in the coalition negotiations of the new federal government. In addition to ideas for solving the financing problems of the statutory pension insurance, taxation was also discussed. According to the plans of the traffic light parties, this is to be reformed soon.
On the one hand, the contributions to the statutory pension insurance should be 100 percent tax-deductible as special expenses from 2023, two years earlier than planned. In addition, the taxable portion of the pension is only to increase by half a percentage point from next year, according to the coalition agreement. Full taxation will not be achieved until 2060. These measures are intended to avoid double taxation of pensions in the future. The Federal Fiscal Court (BFH) had already called for a new regulation in May.
Pensions taxable since 2005
At that time, two plaintiffs – a former tax consultant and a former dentist – took action in the last instance against double taxation of their retirement benefits. The BFH dismissed their complaints, but nevertheless called for changes to the previous system. Because: According to the assessment of the highest German tax court, later pensioners will be affected by double taxation. If the legislature does not act, there is a risk of an unconstitutional situation. The Federal Constitutional Court also wants to deal with pension taxation in the near future, as the "Süddeutsche Zeitung" reported.
The background to the legal dispute is a system change in the taxation of statutory pensions in 2005. Until then, they were tax-free, but the contributions were paid from the taxed wages. Since then, the so-called "subsequent taxation" has applied. This means that pensioners have to pay tax on their monthly money. During working life, however, the contributions can be deducted from income tax as special expenses.
"There was a very simple reason for this: a judgment by the Federal Constitutional Court in 2002," explains Martin Werding, Professor of Social Policy and Public Finance at the Ruhr University Bochum (RUB) in an interview with tagesschau.de. Compared to the taxation of civil servants' pensions, the old system was not constitutional. Therefore, the "subsequent taxation" was introduced, which is an international standard in old-age provision.
There should be no double taxation
"Subsequent taxation, however, requires that the payments are tax-free, so that the pension can be fully taxed afterwards and there is no double taxation," says Werding. Because the changeover will only take effect when someone has been able to deduct the contributions from their taxes throughout their working life, a transitional period is necessary. Such a regulation was originally planned by 2040.
During this time, the taxation of the amounts paid out should be gradually increased by one and later two percentage points to ultimately 100 percent, while the tax burden on pension contributions during working life should be eliminated from 2025. Currently, 94 percent of the contributions are deductible. "This scheme was sewn pretty much on the edge," says the expert. Even then there was criticism of the two-stage transition, and now it has fallen on the legislature's toes. Because the Federal Fiscal Court made it clear with its judgment that there should be no double taxation in any individual case, and that is not yet guaranteed.
"Someone who, for example, paid into the pension insurance for ten years at the beginning of their working life and had to pay a high proportion of these contributions from income that was already taxed, will receive a statutory pension for 30 to 40 years, which in turn is taxable at a relatively high percentage doesn't go together," says Werding. In addition, there is the important finding of the BFH that a large part of the tax liability does not come into play due to the basic allowance for income tax. This calculation is inadmissible, since the allowance is then no longer available for other purposes.
Tax relief of up to 23,522 euros
So far, there is no draft law to amend the Retirement Income Act. In January, Finance Minister Christian Lindner reaffirmed the new government's plan.
A current case study by the pension expert and financial mathematician Werner Siepe for the information portal meine-pension.de shows the financial consequences of the two changes. Siepe calculated the effects for the so-called "standard pensioners" (average earners with a monthly gross income of around 3240 euros) and "high pensioners" (top earners with a monthly gross income of around 7050 euros in the West) born between 1960 and 1990, who retire on average at the age of 65 walk.
The result: Numerous future pensioners could be relieved. The difference between the old and the planned new regulation is greatest for those born in 1975 with retirement starting in 2040. Your earnings are only 91 percent taxable instead of 100 percent. This results in absolute tax advantages of up to 23,522 euros for the "highest pensioners". Otherwise they would have had to give this amount to the state when they retired. For the "standard pensioners", the relief for 20 years of pension amounts to 12,482 euros. This is followed by the 1980 vintage. The difference in the 1960 vintage is the smallest at just 1,538 euros to 2,937 euros. People who retire this year will get nothing from the changes.
In addition, Siepe criticizes that, according to his calculations, full taxation would begin as early as 2058 if the pension share were to increase by half a percentage point from 2023 onwards. Thus, there is still double taxation for younger cohorts. Other experts such as Franz Ruland, former managing director of the Association of German Pension Insurance Providers, also advocate not letting the transition phase end until 2070. According to RUB Professor Werding, another aspect also remains unresolved: The percentage of the pension that is taxable depends on the year of retirement and not on the year of birth. This reduces the incentive to work longer.
"Disproportionately larger problem" is another
In general, however, the number of cases of double taxation will decrease due to the acceleration of the tax exemption by two years and the postponement of full subsequent taxation by 20 years and the problem will thus ease, believes Werding. "Certainly the far greater problem in the context of old-age provision is the management of demographic change in the pay-as-you-go pension system." No solution has yet been found there.
With the traffic light coalition's plans to set up a "partially funded fund" as a permanent and independent fund with a global investment strategy and initial capital of ten billion euros from budget funds, there are still many unanswered questions: the timing of the introduction, further financing in the subsequent years or the type of distribution to the insured. "So far, the ministries have not shown their cards," says Werding. It is difficult that the postponement of the standard retirement age and the touching of the pension level are out of the question for the time being. Because: “If the topic comes up again in the upcoming 2025 election campaign, there will be an outcry.”