In this way, pensioners can reduce their payments to the tax office. Luis Alvarez via Getty Images
Pensions in Germany will increase from July. Almost 100,000 pensions are then suddenly taxable.
A pensioner in the West with a pension of EUR 1,500 gets about EUR 66 more per month from the increase, and about EUR 88 more in the East.
There are various ways for pensioners to claim expenses and costs in their tax return.
The approximately 21 million pensioners in the country will receive more money from July. With the annual pension adjustment, the old-age benefits will increase by 4.39 percent in the West and by 5.86 percent in the East. In addition, more than 30 years after reunification, the so-called pension value in East Germany will be aligned with that in the West – a year earlier than planned.
How much more pension does that make?
A pensioner in the west with a pension of 1,500 euros will get around 66 euros more per month from July 1st and in the east around 88 euros more. However, these are gross monthly amounts – that is, before deducting the contributions for health and long-term care insurance. According to the pension insurance, the annual increase applies to both old-age pensioners and those who have already retired earlier due to incapacity to work. The increase comes automatically. Recipients do not have to do anything for it.
Can retirees become taxable for the first time as a result of the pension increase?
Yes, if your annual pension after deducting your individual pension allowance and tax-reducing expenses – such as medical expenses or household-related services – exceeds the basic allowance of currently 10,908 euros for single people. As a result, filing a tax return becomes mandatory. Double the basic allowance applies to married couples. You become taxable as soon as the total annual pension after deductions exceeds 21,816 euros. According to the Federal Ministry of Finance, 109,000 pensioners will now be subject to tax as a result of the pension increase. At the beginning of the year, however, significantly more, namely 195,000, were no longer subject to tax because the basic tax-free allowance was increased to the 10,908 euros mentioned.
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How can retirees reduce their tax payments?
There are various ways for pensioners to claim expenses and costs in their tax return. This includes household services like cleaners. 20 percent of the expenses and a maximum of 4000 euros can be deducted here. Also at craft services the tax office recognizes 20 percent and a maximum of 1200 euros of the labor and travel costs as a tax reduction. There are also costs for sickness accommodation such as a retirement home or, in the event of exceptional stress, costs for equipment, medication or treatment methods. Also the health or long-term care insurance contributions can be claimed as special expenses in the tax return.
Why is the pension being raised more in the East than in the West?
This is due to the so-called adjustment staircase: by 2024, the pension value in the east should be gradually adjusted to that in the west, which will already be achieved this year. The pension value is increased annually taking into account the wage development in the country. After almost three decades of different calculations in the new federal states, a uniform value of 37.60 euros will now apply from July.
What exactly does this pension value stand for?
It indicates how much a so-called remuneration point or pension point is worth. Insured persons collect earnings points over the years: Whoever earns as much as the average in the country in one year gets one point – whoever earns half as much gets 0.5 points. If you earn more and thus pay more into the pension fund, you will be credited with more points. The number of points collected multiplied by the current pension value plus other factors then result in the pension. There are also pension points for periods of child-rearing, training, illness or unemployment.
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Who actually decides on the pension increase every year?
The federal government and the federal states: The government presents an ordinance on the adjustment of pensions on July 1, taking into account past wage developments in the state. The federal states in the Bundesrat then have to agree to this ordinance, which is usually a formality. The Bundestag does not have to be involved.
And who pays the pension?
Everyone who is currently paying into the pension fund: i.e. employees and their employers, who pay pension contributions from their gross salary to the pension insurance fund every month. This is a so-called pay-as-you-go system: whoever pays in does not save their own pension, but acquires arithmetic entitlements. The money currently collected goes to those who are already retired, and their own pension will then be financed by the next generation of contributors. The pension fund is also supported by federal grants, i.e. money from all taxpayers.
Will pensions continue to rise?
According to pension insurance, there will be another increase next year. The Federal Ministry of Social Affairs also states: “Currently concluded collective agreements provide for considerable wage increases. They will then be reflected in the pension adjustment on July 1, 2024.” A long-term forecast is difficult because it is not foreseeable how wages will continue to develop. However, a fall in pensions is legally excluded by a protective clause. If wages fall, pensions remain the same. If income rises again after a wage dip, the subsequent annual pension increases can be weaker to compensate.
And the pension contributions?
According to a forecast by the pension insurance scheme, they will remain at the current level of 18.6 percent for the next three years. In 2027, however, an increase to 19 and 2028 to 20 percent is expected.
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Assuming I’m about to reach retirement age, how do I apply for a pension?
Prospective retirees can apply for a pension, for example online on the website of the German Pension Insurance. When applying, you will need, among other things, the pension insurance number, information about the health insurance company, ID card, tax ID and IBAN. So that the pension is guaranteed to be paid out in the first month of retirement, the pension insurance recommends submitting the application three to four months before the targeted retirement date.
What if I miss the deadline?
If you apply for a pension within the first three months after retirement, you will also receive the missed pension payments retrospectively. Anyone who misses this deadline must live with the fact that the pension will only flow from the month of application.
Where can I see what pension I will get later?
This is stated in the pension information that is sent annually by post. From now on there is also a possibility to query this online. On the platform rentenuebersicht.de Since Friday, citizens have been able to get an overview of their statutory, company and private pension schemes and find out about the financial situation they can expect in old age. However, the site is not yet complete. The pension insurance is dependent on the private pension providers participating and making their data available. This will be expanded over the course of the year. Registration and login take place via the online function of the identity card with the associated “AusweisApp2” on the smartphone. You also need your tax ID.
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kh with material from the dpa