Changes To German Pension Tax Laws Approved

by Ulrika Lomas, for LawAndTax-News.com, Brussels

23 June 2004

Germany's upper parliamentary chamber, the Bundesrat, has approved a pensions taxation bill which will end tax breaks on retirement savings for 25% of the country's pensioners, but will make employer contributions to supplementary pensions tax free.

Under the new legislation, which has already been approved by the lower house, the taxable portion of pensions will increase annually by two percentage points until 2020, and by one percentage point thereafter, until 2040.

However, pensioners with an annual retirement income of up to EUR18,900 will still receive tax exemption on this income.

The silver lining of the new law is that annual contributions paid by employers to top-up pensions will become gradually tax free over the period to 2025, when they will become exempt from taxation.

The planned legislation has divided the German population, according to reports. In an attempt to soothe criticism of the proposals, the author of the reform process, former Labour Minister Walter Riester explained this week that: "We are in a long-term reform process."

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