Especially in times of a shortage of skilled workers, the so-called silver workers are important. Thomas Barwick/Getty Images
Since 2023, there is no longer any additional earnings limit for early retirement. Anyone who continues to work after retirement does not have to worry about their pension being reduced.
If you earn something extra towards your pension, it doesn’t just increase your income. In this way, you can continue to collect pension points and thus increase your future pension.
If your salary and pension exceed the basic allowance, you have to pay tax on the additional income. If salaries are high, this can lead to high tax payments.
In retirement, pensioners can finally do what they haven’t had time for all these years. Provided the pension is sufficient. Again “Spiegel“Recently reported, a current model calculation by the Ministry of Labor shows that an average earner receives just 1,200 euros in pension after 37 years of work. While some see little other option than continuing to work alongside their pension, others simply cannot imagine life without a job. There is good news for everyone who wants or needs to continue working alongside their pension: as of 2023, there is no longer any additional income limit for the pension. Nevertheless, there are a few things to consider if you want to earn something extra on your pension.
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What is the additional earnings limit and why was it abolished?
The additional earnings limit is the amount you can earn in addition to your pension – without it being reduced. For employees, like this “Financial tip“, the additional income refers to the monthly gross income. For self-employed people, however, it is the monthly tax profit. From the statutory retirement age, which will be raised to 67 by 2031, it was already possible to earn unlimited amounts. In 2023, the additional earnings limit was also abolished for early retirees. Anyone who receives an early pension – also known as a pension at 63 – can now also earn unlimited money. Due to the corona pandemic, the limit was raised drastically in 2020: from 6,300 to 44,590 euros. With the final abolition, the government is primarily reacting to the increasing shortage of skilled workers, according to “Finanztip”.
The regulation also applies to old-age pensions for severely disabled people. With a disability level of at least 50 percent, you can retire from the age of 62. Only in the case of a disability pension is there still an additional earnings limit, although this has recently been raised significantly. In the case of a partial loss of earning capacity, according to the German pension insurance 35,647.50 euros. If you are completely incapacitated, the limit is halved.
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Difference between disability and Severe disability: Reduced earning capacity occurs when a person is unable to work for less than six (partially reduced earning capacity) or three (fully earning impaired) hours a day due to an illness or disability. The degree of disability does not allow any conclusions to be drawn about performance, explains the German pension insurance on your website. People with a severe disability are therefore not automatically unable to work.
The additional income will increase your future pension
The advantage is obvious. Anyone who receives a pension and works at the same time increases their income. This can be considerable amounts – especially since the additional earnings limit was abolished. But there is another plus point: If you retire early and continue to work, your pension entitlement increases. Ultimately, you and your employer continue to pay into the pension insurance. However, as a mini-jobber you can also be exempt from the insurance requirement. If you have applied for an early pension and continue to work during this time, the additional pension points will be credited to you when you reach regular retirement age. The higher amount is then valid for life. If you continue to work beyond the statutory retirement age, the increase will take effect annually on July 1st of the following year, according to “Finanztip”.
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People with pension insurance collect earnings points, better known as pension points, over the course of their working lives. These are calculated per year. A point worth 1.0 corresponds to the average annual income, which was 43,142 euros in 2023. To calculate the pension, a pension value is assigned to the pension point, which is adjusted annually to the economic situation. In 2023 it was 37.60 euros in both West and East Germany. That reported it German pension insurance in October.
calculationGross monthly salary: 2000 eurosPension points:
Gross annual income / average annual income24,000 euros / 43,142 euros
= 0.56 pension pointsPension increase:
Pension points x pension value 0.56 pension points x 37.60 euros
= 21.06 eurosExample calculation: If you earn 2,000 euros gross for a year in addition to your pension, your monthly pension will increase by around 21 euros.
Early retirement and partial pension: When is work plus pension worth it?
The abolition of the additional earnings limit is intended to encourage older employees to stay in the job longer. The combination model of work and pension allows you to take a step back before the normal retirement age – and without major losses in income. For many, it therefore seems all too logical to combine early retirement with additional income and thus receive additional pension points in addition to the salary. However, one thing should not be forgotten: If you retire early, you will accept deductions that will reduce your entire pension. 0.3 percent will be deducted for every month that you receive your pension before reaching the regular retirement age. Although the earlier payment initially creates a financial advantage, this diminishes as you get older. From a certain age onwards, the deductions then exceed this plus. During the period in which your income consists of pension and salary, high tax payments may also be due.
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According to “Finanztip”, the combination of early retirement and work has another disadvantage. Although the contributions for your health insurance are reduced, as a pensioner you lose your right to unemployment and sickness benefits. This can be particularly critical if the job is your main source of income. The situation is different with partial pensions. Instead of the full pension, you can initially receive a smaller part – between ten and 99.99 percent – of your pension. In this case, you will continue to receive sick pay and unemployment insurance benefits. Deductions for early retirement only apply to the portion of the pension paid out early.
Additional income when you retire: The additional tax payment can be tough
Those who retire earlier have to accept deductions. But when it comes to taxes, both partial and early retirement offer a notable advantage. If you retire in 2023, you will have to pay taxes on 83 percent of your pension. Every year the share increases by one percentage point, so that by 2040 the entire pension will probably have to be taxed. Therefore, the earlier you retire, the less taxes you pay.
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Speaking of taxes: regardless of the additional earnings limit, pensioners who receive a salary in addition to their pension must submit a tax return. If your salary and pension payments exceed the basic allowance of 10,908 euros in 2023, you will have to pay tax on the additional income. Depending on the level of salary, the resulting tax payments can be quite steep. How “t-online“ reports, the salary after the start of retirement is taxed through wage tax, but the pension is only taxed through income tax. Since all income for the year is listed in the income tax, wages are also taken into account here. The pension income then increases your taxable income and thus your tax rate – despite the income tax you have already paid. Although the wage tax paid is credited against the income tax, the taxes paid over the year may not cover the tax liability. Therefore, according to “t-online”, there are often additional tax payments if pension and salary are received at the same time.
Important: Pensions are a very complex topic. Decisions regarding your own pension can have far-reaching financial consequences. For this reason, if you have any important concerns or questions, you should definitely contact them German pension insurance or contact another advice center.
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