No Taxes on Your Pension? Here's the Deal for 2025
Maximizing pension earnings exempt from tax payments: A financial guide - Determining tax-exempt pension amount: A guide
Wanna know how much pension you can rake in without paying taxes? Let's dive in!
Written by Nadine OberhuberApprox. Reading Time: 2 Mins
The Ministry of Finance lays it all out: In 2025, fresh retirees could rake in 16,243 euros in annual gross pension without coughing up a penny in taxes – but remember, this figure is for singles, with couples getting double the cake. Those who kicked off their pension journey way back in 2005 could've scored up to 19,758 euros sans tax, all thanks to the gradual adjustment of pension taxation since 2005. And guess what? The tax-free allowance takes a little dive each year for new retirees, as the proportion of the pension that's taxed inches up accordingly.
In 2024, a whopping 83% of the pension was up for taxation. Originally, the plan was for it to hit 100% by 2040, but with the Growth Opportunities Act, that won't happen until 2058. So, the deal is that pensions get taxed later, allowing workers to save a tad more pre-tax for their twilight years.
Time to File a Tax Return, Folks!
Why's the government messing with our pensions? To level the retirement savings playing field, that's why! Because those who stash away for retirement are tapping their tax-free gross income, their payouts from such plans get taxed, at least theoretically. But fear not, retirees are supposed to be hit with lower tax rates compared to the working folk.
So, here's the lowdown: if you drew more than 11,604 euros in pension income last year (2024), buddy, you're gonna need to file that tax return, regardless of when you retired. In the current year 2025, the threshold is raised to 12,084 euros. Above this mark, taxation usually kicks in, around 1,000 euros per month. But hey, there's a chance your pension might've been offset by advertising costs and special assessments, or you might be able to claim extraordinary burdens. If that's the case, your total income could surpass this allowance without setting off any tax triggers. But the tax office'll need to sift through each case to verify that.
The Breakdown: 83% of Your Pension is Taxable
So, how does the Ministry of Finance figure all this out? In 2024, the highest annual gross pension that new retirees could rake in without feeling the tax burn was 16,243 euros – which equates to 1,323 euros per month. The taxable portion is currently 83% for them, meaning they'll be taxed on 13,481 euros of their 16,243 euros. From this, retirees can deduct the advertising cost allowance of 102 euros, the special expenses allowance of 36 euros, and retirement provisions of up to 1,739 euros. This brings their taxable sum down to 11,604 euros for 2024.
And if you retired way back in 2005, you can still score half of your pension income tax-free, which means you can still bag up to 19,758 euros – or 1,610 euros per month – while avoiding the taxman's gaze.
Tags: Tax, Pension Taxation, New Retirees, BMF
Insight:As of 2025, the annual gross pension amount in Germany isn't explicitly set without tax liability, but it's aligned with the pension points system. One pension point equates to approximately €50,493 gross per year[2]. However, the tax-free portion of the pension is calculated as a fixed amount based on the year of retirement, not as a percentage of the entire pension.
For those retiring in 2025, 16.5% of their pension is tax-free, assuming they reap a pension of €20,000 per year. This tax-free portion stays steady, even if their pension increases. The taxable portion of their pension, however, goes up by 0.5% each year, pegged to reach 100% by 2058. For someone retiring in 2025, 83.5% of their pension will be taxable[1].
The incremental increase in taxation translates to future retirees shouldering a higher tax burden compared to today's retirees.
References:[1] www.bmfsf.de[2] Deutsche Rentenversicherung Bund
- The Ministry of Finance's employment policy involves gradual adjustments to the taxation of pensions, with the tax-free allowance decreasing annually for new retirees while the proportion of the pension that's taxed increases accordingly.
- In personal finance, retirees need to be mindful of tax regulations, as those who received more than 12,084 euros in pension income in 2025 are required to file a tax return, and a significant portion of their pension is subject to taxation.
