The Old Age Pension Bill adopted by the cabinet on December 3 moves from the present system of taxing pensions by restricting relief on the contributions to one of full relief now and full charge later.
The cabinet has adopted an Old Age Pension Bill proposed by the Ministry of Finance to move from the present system of granting only limited relief for contributions against wide exemption from taxation of pensions, to one of full pension taxation against full contribution relief. The changeover period will be almost 40 years to protect the interests of the existing pensioners and workforce without putting an undue burden on the public finances. The change follows from a Constitutional Court case of 2002 holding taxation of (non-contributory) civil service pensions to be unconstitutional because of the (largely) foregone taxation of pensions paid under the social security scheme. However, the Court gave the government latitude to change the system gradually and gently. Full relief on the contributions will be available by 2025; full taxation on pension incomes will be felt by those retiring in 2040. The tax rules for life assurance policies will be conformed to the new system (similar changeover provisions) and a number of other adjustments - mainly in the interests of employee mobility - are intended. The government has also announced its intention of renegotiating at least the European double tax treaties to allow German taxation of pension incomes if the premiums (contributions) were deducted as German expenses
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