Pension taxation: fair or double burden?

The common claim about pensions

The demand is being spread on social networks that pensions should be tax-free because they are financed from the wages of contributors who have already been taxed. This claim suggests that pension taxation represents an unjustified double burden.

The fact check

The German tax system requires pensions to be taxed as income, which at first glance may seem like double taxation. will lead to these contributions being completely tax-free by 2023

This mechanism is based on the principle of downstream taxation, which was introduced with the Retirement Income Act to create tax equity between employed people and pensioners. An important aspect of this is to effectively exclude double taxation .

No double taxation

Pension taxation does not represent a case of double taxation, but follows the principle of downstream taxation. During the employment phase, the tax deductibility of pension contributions provides relief.

In retirement, pension income is then taxed, with many pensioners paying little or no tax basic tax allowance The aim of the system is to distribute the tax burden fairly over the course of life while at the same time securing pensions.

Questions and answers about pension taxation

Question 1: Why are pensions taxed even though the contributions come from taxed income?
Answer 1: The taxation of pensions follows the principle of downstream taxation, which aims to achieve a fair distribution of taxes over a lifetime and avoid double taxation.

Question 2: Is taxation of pensions justified?
Answer 2: Yes, the taxation of pensions is justified by the goal of tax fairness and the sustainable financing of the pension system.

Question 3: Can pension contributions be tax deductible?
Answer 3: Yes, pension insurance contributions have been gradually tax-deductible since 2005 and will be completely tax-free from 2023.

Question 4: Are there cases when pensioners do not pay taxes?
Answer 4: Yes, pensioners whose total income is below the basic tax allowance do not pay taxes on their pension.

Question 5: What is the aim of downstream taxation?
Answer 5: The aim is to achieve a fair distribution of the tax burden over the course of life and at the same time to finance the pension system sustainably.

Conclusion

The taxation of pensions is an integral part of the German tax system, which aims to ensure tax fairness and the long-term security of the pension system. The demand for tax exemption for pensions does not do justice to the complexity and legitimate objectives of this system. It is important to learn about the actual mechanisms and goals of pension taxation in order to have an informed discussion.

Source: DPA

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