The Retirement Income Act means that civil servants' pensions and pensions from the statutory pension insurance scheme will be treated equally for tax purposes in future. This will enable the gradual taxation of retirement income from 2005 onwards. This includes life annuities and other benefits from
- statutory pension insurance schemes
- agricultural pension funds
- Occupational pension schemes and
- Life annuity insurance policies which only provide for the payment of a monthly life annuity for the life of the taxpayer which is not paid out before the age of 60. The claims arising from these insurance policies may not be inheritable, transferable, lendable, alienable or capitalizable.
Life annuities also include pensions due to reduced earning capacity and survivors' pensions.
From 2005, 50 percent of retirement income is subject to taxation. This applies to all existing pensions and pensions paid for the first time in this year. The taxable portion of the pension will be increased in steps of 2 percentage points to 80% for each new pension cohort until 2020, in steps of 1 percentage point from 2021 and then in steps of 0.5 percentage points to 100% by 2058. The tax rate for the 2022 pension cohort will be 82% and 82.5% for the 2023 pension cohort. The tax-free portion of pensions will be permanently fixed for each pension cohort. However, it is not a specific percentage that is fixed, but an exempt amount to be fixed. The tax-free portion is fixed in the year following the first pension payment. If the pension started before January 1, 2005, the annual amount of the pension for 2005 is decisive.
The tax-free amount does not change in the event of regular pension adjustments.
Note
You can also find information on the Retirement Income Act in the "Tax tips for senior citizens".