Germany plans pension taxation reform after election

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imageEconomy7 hours ago (May 31, 2021 12:20)

© Reuters.

MUNICH (Reuters) -Germany’s Finance Ministry said on Monday it plans to reform the taxation of pensions after September’s federal election, responding to the federal fiscal court’s demand for an overhaul to avoid the double taxation of future retirement savings.

“This is a proposed solution that we can imagine,” State Secretary Rolf Boesinger said in Munich.

He spoke after the court dismissed one couple’s double taxation complaint but said future pensioners were at risk of having to pay taxes twice under existing transitional regulations.

The ministry envisaged contributions to statutory and private pensions during a person’s working life being fully tax deductible before 2025. Currently, 92% of them can be deducted.

“We don’t want double taxation of pensioners,” Boesinger said.

The court case resulted from a 2005 change in the law that made pensions liable to tax. Until then, pensions had been essentially tax-exempt as the contributions were made from taxed salaries.

Under the 2005 law, pension contribution payments gradually became essentially tax free while the taxable share of pension income was increased in a process set to conclude by 2040.

The couple’s complaint against the rules, rejected by the court as unfounded, centred on the transition period, during which double taxation can occur if the tax-exempt part of the pension is less than the contributions pensioners had earlier made from their taxed salaries.

The taxpayers’ association estimates that of the roughly 20 million pensioners in Germany, around 5 million pay taxes. The others’ pensions are so low that they fall below the assessment threshold.

Germany plans pension taxation reform after election

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