German tax law · Retirement benefits
Pension Taxation in Germany
Pensions are generally subject to German income tax, but different types of retirement benefits follow different rules. For statutory pensions and comparable basic retirement provision, the taxable percentage depends particularly on the year the pension begins. Separate rules apply to occupational pensions, private annuities and foreign retirement benefits.
Tax relief on contributions and taxation of benefits
Basic retirement contributions receive tax relief, while the later pension is taxed
Since 2005, Germany has gradually moved basic retirement provision to taxation at the benefit stage. The statutory percentage recognized for eligible retirement contributions has been 100% since 2023. The monetary limits and other conditions in section 10 of the German Income Tax Act (EStG) still apply, and tax-exempt employer contributions must be taken into account. The taxable percentage for later pensions continues to increase according to the pension commencement year.
For pensions from the statutory pension insurance system, agricultural pension fund, professional pension institutions and certain qualifying basic pension contracts, section 22 EStG determines the taxable percentage by reference to the year the pension begins.
Section 22 EStG
For pensions commencing in 2026, the taxable percentage is 84%
For basic retirement provision, the relevant taxable percentage generally depends on the pension commencement year. It is 84% for a pension first commencing in 2026. Special rules can apply, for example, where successive pensions arise from the same insurance arrangement.
Since 2023, the taxable percentage for each new cohort of pensioners has increased by 0.5 percentage points. Under current law, 100% is first reached for pensions commencing in 2058. This does not generally abolish the existing tax-free pension allowances of earlier cohorts.
- 2023: 82.5%
- 2024: 83.0%
- 2025: 83.5%
- 2026: 84.0%
- 2027: 84.5%
- Full inclusion for pensions commencing from 2058
| Pension commencement year | Taxable percentage |
|---|---|
| 2020 | 80.0% |
| 2021 | 81.0% |
| 2022 | 82.0% |
| 2023 | 82.5% |
| 2024 | 83.0% |
| 2025 | 83.5% |
| 2026 | 84.0% |
| 2027 | 84.5% |
| 2028 | 85.0% |
| 2029 | 85.5% |
| 2030 | 86.0% |
The taxable percentage is not the tax rate: 84% does not mean that 84% of the pension is payable as tax. The actual income tax depends on taxable income, deductions and the applicable personal tax rates.
Individual tax-free pension allowance
The tax-free portion is generally fixed as a euro amount
The taxable percentage does not mean that the same percentage of each year's current pension remains taxable and the balance tax-free. Instead, the exempt portion is generally used to establish an individual fixed euro allowance, known as the Rentenfreibetrag.
The allowance is generally calculated using the annual gross pension in the calendar year following commencement. If the pension starts in 2026, the relevant year is generally 2027, even where payments began in January 2026. The starting figure is the pension before deduction of the recipient's own health and long-term care insurance contributions.
This tax-free amount generally continues for the remaining payment period. Changes other than regular pension adjustments can, however, require recalculation. The pension-specific allowance must be distinguished from the general annual basic income tax allowance, the Grundfreibetrag.
Example
How the fixed pension allowance works
In this simplified example, a statutory retirement pension first begins in 2026, giving a taxable percentage of 84%. The annual gross pension in the relevant following year, 2027, is EUR 30,000. Special circumstances such as pension arrears are excluded from the example.
The exempt portion is 16% of EUR 30,000, or EUR 4,800. In 2027, the taxable pension amount before income-related expenses is therefore EUR 25,200. If the annual gross pension later rises solely through regular adjustments to EUR 32,000, the taxable pension amount is EUR 27,200. Income-related expenses, special-expense deductions and other deductions have not yet been applied to these figures.
Annual gross pension in 2027
EUR 30,000 in the calendar year following pension commencement in 2026.
Pension commencing in 2026: 84%
The example produces EUR 25,200 of taxable pension for 2027 before income-related expenses.
Tax-free pension allowance
16% of EUR 30,000 generally establishes a fixed exempt amount of EUR 4,800.
Subsequent pension increase
EUR 32,000 annual gross pension less the EUR 4,800 allowance produces EUR 27,200 of taxable pension before income-related expenses.
Which type of pension?
Not every retirement benefit uses the cohort-based taxable percentage
Before calculating tax, identify the type of retirement provision involved. German income tax law contains several different systems.
Statutory pension insurance
Retirement, disability and survivor pensions from statutory pension insurance generally fall within the benefit-stage taxation rules in section 22 no. 1 sentence 3(a)(aa) EStG.
Professional pension institutions
Benefits paid to physicians, lawyers and other members of professional pension institutions generally follow the same taxable-percentage system.
Basic pension / Rürup
Benefits from qualifying basic pension contracts under section 10(1) no. 2(b) EStG generally also follow the taxable-percentage system.
Occupational pension
Benefits from direct insurance, Pensionskassen and pension funds generally fall under section 22 no. 5 EStG, where contribution relief is important. Benefits under direct employer promises and support-fund arrangements are generally employment income under section 19 EStG.
Private lifetime annuity
For a private lifetime annuity outside basic retirement provision, only the statutory earnings component under section 22 no. 1 sentence 3(a)(bb) EStG may be taxable. It generally depends on the age at commencement; for example, it is 17% where payments begin at age 67.
Riester pension
Benefits from Riester contracts generally fall under section 22 no. 5 EStG. The portion attributable to tax-favored contributions and government allowances is generally fully taxable on distribution. Amounts without that support require a separate assessment.
Civil-service pension
Civil-service retirement benefits generally constitute employment income under section 19 EStG. A pension allowance and an additional supplement may be available if the statutory requirements are met.
Foreign pension
A foreign pension must first be compared with a German pension or retirement arrangement under German law. An applicable tax treaty must also be considered where relevant.
Pension commencement
The actual commencement year determines the relevant taxable percentage
The taxable percentage generally depends on the calendar year in which the particular pension began. Keep the original pension award notice, even many years after payments start.
For multiple pensions or different benefits, determine the relevant commencement date separately for each benefit. If pensions from the same insurance arrangement follow one another, such as a retirement pension following a disability pension, earlier payment periods may affect the applicable percentage.
Moving to Germany does not, by itself, restart a pension that is already being paid. Evidence of the original commencement date and any earlier pensions from the same insurance arrangement should therefore be retained.
Income tax calculation
A taxable pension does not automatically mean income tax is payable
The taxable pension amount is only one element of the income tax calculation. Whether tax is actually due depends on total taxable income after the applicable deductions.
The basic income tax allowance for 2026 is EUR 12,348. For jointly assessed spouses, income splitting generally gives the effect of twice that amount, EUR 24,696. The ordinary income tax calculation uses final taxable income, not the gross pension. Special rules, including progression and the separate taxation of investment income, must also be considered.
For pension income covered by section 22 nos. 1, 1a and 5 EStG, a combined annual income-related expense allowance of EUR 102 per person generally applies unless higher expenses are substantiated. It is not available separately for each pension. Deductible health and long-term care insurance contributions can then further reduce final taxable income.
Additional pensions
Occupational pensions, private annuities and foreign retirement benefits may increase taxable income.
Rental income
Taxable net rental income generally adds to the income subject to personal income tax rates alongside pension income.
Investment income
Investment income is often subject to the separate tax regime under section 32d EStG. In that case, it generally does not increase the personal tax rate on the pension. Inclusion under ordinary rates may be available, particularly on application for the more-favorable-taxation assessment known as the Günstigerprüfung.
Income-related expenses
The EUR 102 allowance applies to the covered pension income in aggregate. Higher substantiated expenses may be deducted instead.
Health and long-term care insurance
Certain health and long-term care insurance contributions may qualify as deductible special expenses.
Exceptional personal expenses
Depending on individual circumstances, additional deductions may reduce the income tax actually payable.
Filing obligations
The duty to file and the amount of tax payable are separate questions
For pensioners subject to German tax on worldwide income who have no income from which German wage tax was withheld, section 56 of the Income Tax Implementing Regulation (EStDV) generally governs filing. A single person must file in particular if the aggregate amount of income, the Gesamtbetrag der Einkünfte, exceeds EUR 12,348 in 2026. For jointly assessed spouses, the corresponding threshold is generally EUR 24,696 if neither spouse received income subject to wage tax withholding.
The aggregate amount of income is different from final taxable income: special expenses such as health and long-term care insurance contributions are generally deducted afterward. A return may therefore be required even where no income tax is ultimately payable.
Anyone also receiving income subject to wage tax withholding, such as salary or a civil-service pension, must consider the assessment rules in section 46 EStG. Other filing obligations may also apply. A request from the tax office independently creates a duty to file under section 149(1) sentence 2 of the Fiscal Code (AO).
Foreign pensions
An applicable tax treaty adds another layer to the assessment
A person living in Germany and receiving a foreign pension must assess German tax liability and any applicable double taxation treaty. The benefit requires classification under German domestic law. The treaty may restrict Germany's taxing rights; depending on the circumstances, exemption, exemption with progression or a foreign tax credit may apply.
German classification of foreign social security benefits, occupational pension plans and individual retirement accounts can differ substantially from their treatment in the country of origin.
Contribution history is particularly important for benefits within section 22 no. 5 EStG. Since the 2025 assessment period, the law expressly takes account of comparable tax exemption or relief granted for contributions to foreign retirement arrangements. The relief must actually have been granted.
Germany–USA
U.S. Social Security, 401(k) and IRA benefits follow different rules
U.S. retirement arrangements require careful distinctions. Social Security falls under a special social security provision in the Germany–U.S. treaty. A 401(k), Traditional IRA or Roth IRA is a pension plan with separate treaty and German domestic classification rules.
U.S. Social Security
For a German treaty resident, Article 18(5) gives Germany the exclusive taxing right. The exception to the saving clause means this also applies to U.S. citizens.
401(k)
A U.S. pension plan with treaty protection during accumulation and a separate German assessment of distributions.
Traditional IRA
A U.S. pension plan expressly covered by the treaty, with its own contribution and distribution history.
Roth IRA
Roth IRAs are also treaty-recognized pension plans generally benefiting from deferral for income retained within the plan. A distribution that is tax-free in the United States is nevertheless not automatically tax-free in Germany.
Common mistakes
Frequent misunderstandings about pension taxation
Assuming exactly 84% stays taxable every year
The commencement-year percentage is used to establish the fixed tax-free allowance. Subsequent regular pension increases therefore generally raise the taxable pension amount.
Equating the gross pension with final taxable income
Whether income tax is actually due can be determined only after calculating taxable income and applying special expenses and other deductions.
Treating all pensions alike
Statutory pensions, occupational pensions and private lifetime annuities can follow entirely different tax rules.
Failing to document the commencement date
For basic retirement provision, the commencement year is generally decisive. For successor pensions, earlier pension periods from the same insurance arrangement may also matter.
Assuming foreign pensions follow the same rules as German pensions
The treaty and the foreign arrangement's comparability must be assessed before the German tax calculation.
Not filing because no tax was withheld
German income tax is often not withheld from ongoing pension payments. This does not rule out a filing obligation or tax liability.
Further reading
Related topics
Frequently asked questions
Pension Taxation in Germany
What is the taxable percentage for a pension beginning in 2026?
Does exactly 16% of my pension remain tax-free every year?
When do pensions become 100% taxable?
Does every pensioner have to file an income tax return?
Is an occupational pension taxed like a statutory pension?
How are foreign pensions taxed in Germany?
Is U.S. Social Security treated like a German statutory pension?
Which year is used to calculate the fixed pension allowance?
Do interest and dividends increase the tax rate on my pension?
Why does my taxable pension increase after a regular pension adjustment?
Legal framework
Relevant provisions
- Section 22 EStG : taxable percentages, fixed pension allowance, successor pensions, statutory annuity earnings components and benefits from retirement arrangements.
- Section 10 EStG and Section 9a EStG : retirement and insurance expenses and standard income-related expense allowances.
- Section 19 EStG : civil-service pensions and certain occupational retirement benefits.
- Section 32a EStG : income tax rates, the basic allowance and income splitting for spouses.
- Section 2 EStG and Section 32d EStG : income categories, final taxable income and the separate regime for investment income.
- Section 56 EStDV , Section 46 EStG and Section 149 AO : filing obligations and assessment.
- Protocol amending the Germany–U.S. treaty, signed June 1, 2006 (IRS, PDF) : in particular Article 1(5), Article 18(5), Article 18A and paragraph 16 of the treaty Protocol.
Tax advice
Do you receive German or foreign pensions?
We review the pension type, commencement date, taxable percentage and tax-free allowance, as well as occupational and foreign retirement benefits. For cross-border cases, we also consider the applicable double taxation treaty.
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