Millions of pensioners will get significantly more money from July 2023. But many retirees have to share their extra money with the tax authorities. The first calculations show that.
Pensions will increase on July 1, 2023:
This is recommended by the federal government’s 2022 pension report, which is due to be published at the end of November. But the rising pensions also have a downside: Those who collect too high a pension slip into tax liability.
Depending on the amount of retirement benefits, retirees can look forward to a large plus.
This is shown by the example of the “corner pensioner” or “standard pensioner”. Experts repeatedly cite this when they want to clarify developments in statutory pensions.
The “corner pensioner” is actually only a theoretical value: It is assumed that an employee pays into the pension fund for 45 years and always earns exactly the average salary of all pension insured persons. The value changes every year, for example in 2022 it is 38,901 euros. In 2021 it was still 40,463 euros. The extraordinary decline was due to the corona pandemic. In 2023 it will rise again significantly.
After 45 years, the corner pensioner has exactly 45 pension pay points (pension points, RP) and receives a corresponding old-age pension. The formula for West German corner pensioners is:
As a result of the 3.5 percent increase in pensions planned for 2023, the value of a pension point will increase to EUR 37.28 and thus the calculated amount of the basic pension to EUR 1677.63. So there is a plus of 56.73 euros per month. Or 680.77 euros per year.
For East German corner pensioners, the calculation looks like this:
On 1.7. In 2023, the value of a pension point will increase by 4.2 percent to 37.01 euros. This means that an East German corner pensioner will receive a gross pension of EUR 1,665.45 from July 1, 2023.
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Note: In Germany, every pension adjustment follows the wage development of all employees subject to pension insurance. The wage increase for the whole of 2022 has not yet been determined. There can only be reliable figures after December 31, 2022! The following applies: the increase in pensions can even be higher than the recently published figures. Or less.
Pensioners, like any other income earner, have to pay tax on their income. At least if they exceed certain limits.
The following applies:
Double the rates apply to couples – for the basic and for the pension allowance.
Note on the pension allowance: The amount remains the same throughout the life of a pensioner. This means that future pension increases can at some point lead to a retiree becoming liable for tax because he or she exceeds the allowances. According to the Federal Ministry of Finance, this affected around 103,000 pensioners last year alone.
The FOCUS Online Guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
The following applies to the pension allowance: the later someone retires, the lower the tax-free portion of their pension and the more they have to pay tax on. The current plan is for the tax-free portion of the pension to decrease by one percentage point every year. In 2040, 100 percent of pensions are to be counted as income subject to income tax. But even then, all sums within the basic allowance are tax-free.
The traffic light has announced that it intends to slow down the decline in the tax-free portion of pensions. This should be implemented as early as 2023.
Nothing concrete is known yet, but it is conceivable that the previously planned 1 percent increase in taxable pension components will be reduced to 0.5 percentage points. If that happens, then in 2023 the following will apply: new pensioners will not only have a 17 percent tax-free portion of their pension, but this value will rise to 17.5 percent.
Pension politicians are also discussing the fact that full tax liability should only apply from 2060. An extended transition period means tax relief for many future pensioners. But that’s still a long way off at the moment. In the following example calculations, we assume that the amount of taxable pension income will increase in 0.5 percent annual increments from 2023.
The following example calculations do not take into account that retirees can deduct certain amounts from their pension income. This includes parts of their contributions to health and nursing care insurance or craftsmen’s bills. All of these deductions reduce taxable retirement income and therefore income tax. Those affected should discuss such questions with a tax advisor or income tax assistance associations.
Important: Anyone who has other sources of income as a pensioner – something from capital assets, private pension schemes or rents – must also report these amounts to their tax office.
Sample calculation 1
Mr B. lives in the old federal states.
Retirement beginning January 1, 2022, gross monthly pension 1050 euros.
In 2022, Mr B. will receive:
Total: 12,937.08 euros
Thanks to his pension allowance of 18 percent, Mr. B. can pocket 2328.67 euros tax-free. So he comes up with 10,608.41 euros in taxable pension income. As a result of the pension increase, he is just above the current basic tax allowance of 10,347 euros and has to pay taxes on around 260 euros. It doesn’t cost him much in taxes, but it shows that the pension increase makes Mr. B. liable for taxes.
In 2023, the pension will increase by 3.5 percent to 1144.90 euros per month on July 1st.
Mr. B.’s total pension payments in 2023:
Total withdrawal 13,506.48 euros
The pension allowance of 2328.67 euros can be deducted from this. That leaves 11,177.81 euros. The basic allowance of EUR 10,908, which will increase in 2023, will be deducted from this. Mr. B. is above that and has to pay taxes on almost 270 euros in pension, similar to the amount in 2022.
If the 2022 basic allowance of EUR 10,347 remained unchanged, Mr B. would have had to pay tax on pension income of a good EUR 830. The amount of the tax is based on the individual tax rate. Thanks to the increasing basic allowance, the pensioner gets away with a black eye.
Sample calculation 2
Mr. D. from Dresden will retire on January 1st, 2023. According to the current forecast, he will receive a monthly pension of 1,400 euros. On July 1, the amount will increase by 4.2 percent to EUR 1,458.80 per month.
The total bill:
Total 17,152.80 euros
Mr D. can deduct his pension allowance from this. In 2023 it will probably be 17.5 percent. Thus, 3001.74 euros remain tax-free.
The pensioner can deduct the basic allowance of 10,908 euros from the remaining amount of 14,151.06 euros. That leaves 3,243.06 euros in taxable pension income. Mr D. pays his personal tax rate for this.
If the pension increase had not taken place in 2023, Mr. D. would only have had to pay tax on 2890.26 euros. This shows that part of the pension increase is collected from taxes. The final tax rates and allowances in 2023 will show exactly how much.
Sample calculation 3
Ms. E. from the old federal states has always earned well. Her monthly pension is 2000 euros. She retired on January 1st, 2021. At that time, the pension increase fell on July 1st. in the west – a consequence of the corona pandemic.
In 2021 Ms E. received a pension of 24,000 euros. Of these, 19 percent were tax-free – ie 4560 euros.
Ms E. was allowed to deduct the basic allowance of 9744 euros from the remaining amount of 19,440 euros. In 2021 she had to pay tax on 9696 euros.
On July 1, 2022, the pension in the west rose by 5.35 percent, Ms. E.’s monthly pension climbed to 2107 euros.
On July 1, 2023, she will get another pension plus – this time of 3.5 percent. Your monthly pension increases to 2180.75 euros.
Your pension income 2023:
Total 25,726.50 euros
Less your lifelong pension allowance of 4560 euros and the basic allowance of 10,908 euros.
Results in taxable pension income: 10,258.50 euros.
The 3rd example shows: Within two years, Ms. E.’s annual pension increased from 24,000 euros to 25,726.50 euros. Because her pension income has always been above the basic tax-free allowance, Ms E. also had to pay tax on a large part of her retirement income. In the two years 2022 and 2023, however, the tax will not rise quite as steeply as your pension payments, because in 2023 the basic tax-free allowance will increase significantly – this will lower the taxable pension amount. And lets Ms. E. get more out of her pension benefit. But not the entire amount.
