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PENSIONS

Why taxes on pensioners in Germany have risen up to 500 percent since 2010

The tax burden on pensioners has increased fivefold within ten years in some cases, according to figures released by the Finance Ministry on Wednesday.

Published: 20 November 2019 11:59 CET
Why taxes on pensioners in Germany have risen up to 500 percent since 2010
Photo: DPA

For example, new pensioners now have to pay €430 in income tax per year on a monthly gross pension of €1500, compared with €79 in 2010.

The figures were released on Wednesday, as part of an inquiry submitted to the Federal Ministry of Finance by Die Linke. 

READ ALSO: How to maximize your German pension – even if you plan to retire elsewhere

For an individual with a monthly gross pension of €1700, €294 was due at the start of pension payments in 2010. This year that figure has risen to €758.

If the monthly earnings were €2000, €679 in taxes would have been due in 2010. Now the figure has risen to €1326. 

Die Linke Left Party leader Dietmar Bartsch criticized the increasing pension taxation as a “de facto pension cut”.

Why is there an increase?

The sharp increase is due to a change which was introduced in 2005. Until then, a tax-free allowance of 50 percent of the pension was permitted. 

Since then, the tax rate on pensions has risen by two percentage points annually. 

Health and long-term care insurance contributions and some everyday expenses can also be claimed.

The tax becomes due when the total income of a pensioner exceeds the basic annual tax-free allowance (€9168 or €764 per month). The average monthly pension in 2018 was €1219.

“In the next few years, the tax burden for small and medium-sized pensions will continue to rise,” Barsch told DPA.

He called on Finance Minister Olaf Scholz and Labour Minister Hubertus Heil (both SPD) to present a plan with significantly higher tax allowances to protect small and medium-sized pensions.

In 2015, a total of €34.65 billion in income tax was paid to the state by taxpayers with pension income.

There is currently a push around Germany to raise the pension age to 69, up from 67, in light of rising lifespans.

Read more of our coverage of pensions in Germany HERE. 

Vocabulary

Tax burden – (die) Steuerbelastung, (die) Steuerlast 

Fivefold – um das Fünffache

due/payable – fällig

Pension contributions – (die) Rentenbeiträge

Basic tax-free allowance – (der) Grundfreibetrag

To deduct – abziehen 

We're aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

 

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TAXES

Beskæftigelsesfradraget: What is Denmark’s employment allowance?

Denmark's government may soon announce changes to its tax reform plans, which will give all wage earners a bigger employment allowance. What is this and how will it affect foreigners' earnings?

Published: 30 October 2023 15:21 CET
Beskæftigelsesfradraget: What is Denmark's employment allowance?

What is the employment allowance? 

The Beskæftigelsesfradraget (from beskæftigelse, meaning employment, and fradrag, meaning rebate) was brought in by the centre-right Liberal Party back in 2004, the idea being that it would incentivise people to get off welfare and into a job.

Everyone whose employer pays Denmark’s 8 percent AM-bidrag, or arbejdsmarkedsbidrag, automatically receives beskæftigelsesfradraget. Unlike with some of Denmark’s tax rebates, there is no need to apply. The Danish Tax Agency simply exempts the first portion of your earnings from income taxes. 

In 2022, beskæftigelsesfradraget was set at 10.65 percent of income with a maximum rebate of 44,800 kroner. 

How did the government agree to change the employment allowance in its coalition deal? 

In Responsibility for Denmark, the coalition agreement between the Social Democrats, the Liberals and the Moderate Party, the new government said it would set aside 5 billion kroner for tax reforms.

Of this, 4 billion kroner was earmarked for increasing the employment allowance, with a further 0.3 billion going towards increasing an additional employment allowance for single parents.

According to the public broadcaster DR, the expectation was that this would increase the standard employment  allowance to 12.75 percent up to a maximum rebate of 53,600 kroner. 

How might this be further increased, according to Børsen? 

According to a report in the Børsen newspaper, the government now plans to set aside a further 1.75 billion kroner for tax reforms, of which nearly half — about 800 million kroner — will go towards a further increase to the employment allowance. 

The Danish Chamber of Commerce earlier this month released an analysis in which it argued that by raising removing all limits on the rebate for single parents and raising the maximum rebate for everone else by 20,300 kroner, the government could increase the labour supply by 4,850 people, more than double the 1,500 envisaged in the government agreement. 

According to the Børsen, the government estimates that its new extended allowance will increase the labour supply by 5,150 people.  

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