German court demands pension reform to avoid double taxation in future

Germany's federal fiscal court on Monday demanded changes to the taxation of pensions to avoid the double taxation of retirement savings in the future but dismissed as unfounded a specific double taxation complaint. Future pensioners are at risk of having to pay taxes twice under existing transitional regulations, the court said.

Germany's federal fiscal court on Monday demanded changes to the taxation of pensions to avoid the double taxation of retirement savings in future but dismissed as unfounded a specific double taxation complaint.

Future pensioners are at risk of having to pay taxes twice under existing transitional regulations, the court said. Above all, a basic tax-free allowance, to which all taxpayers are entitled, must be excluded from the taxation of retirement income, presiding judge Jutta Foerster said. The court case resulted from a 2005 change in the law that made pensions liable to tax. Until then, pensions had been essentially tax-exempt as the contributions were made from taxed salaries.

Under the 2005 law, pension contribution payments gradually became essentially tax-free while the taxable share of pension income was increased in a process set to conclude by 2040. A couple's complaint against the rules centered on the transition period, during which double taxation can occur if the tax-exempt part of the pension is less than the contributions pensioners had earlier made from their taxed salaries.

As of July 1, 2019, there were 21.1 million pensioners in Germany, according to the Deutsche Rentenversicherung pension insurance group.

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