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Taxation of income from private pension insurance policies
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Taxation of private pension insurance
Taxes accompany us throughout our lives – the topic remains relevant even in relation to private pension insurance.
How high is the tax burden on private pension insurance and what amount actually remains after taxes?
These questions are crucial for retirement planning.
It is important to note that Different forms of pensions are also taxed differently. The statutory pension, for example, is subject to different taxation rules than private pension insurance.
Additionally, the Type of pension payment a role (e.g. payout of the entire capital at the beginning of the pension compared to monthly pension payments until the end of life), as this affects taxation.
Taxation of private pension insurance policies based on the income portion
Example: Taxation based on the income share
Below we give you an overview of the basis for calculating the income portion for the taxation of private pension insurance.
As an example, let's assume you've reached the age of 67 and want to receive both your state pension and your private pension. If you choose to receive a lifelong pension from your private pension insurance, this pension will be taxed according to the income portion.
Let's assume you receive €750 per month from your insurance. According to the table for the taxable portion, 17% of this pension is taxable (highlighted in yellow).
Assuming your personal taxThe replacement rate for pensioners is 30 %. The calculation then looks like this:
The €750 monthly pension from your private pension insurance is taxed at rate 17 %:
750 € * 17 % = 127,50 €
These €127.50 will then be taxed at your personal tax rate of 30 %:
127,50 € * 30 % = 38,25 €
Therefore, your monthly tax deduction is €38.25. This means that of your €750 private pension, €711.25 net remains each month. This corresponds to an effective tax burden of 5.2%.
Note: Many of our prospective clients ask us whether the tax burden on the income portion decreases with age. While this could be deduced from the table, the age at the time of the initial payout remains the decisive factor until death.
Tax aspects of retirement planning: Private pension insurance compared to Riester, Rürup and investment accounts
Unlike the Riester or Rürup pension schemes, a private pension insurance policy offers no tax advantages during the savings phase. The contributions you invest monthly in a private pension insurance policy, such as an ETF-based pension plan, are already taxed and come from your net income.
To compensate for the lack of tax advantages during the savings phase, the state provides for lower taxation during the retirement phase, based on the income portion of the pension payments.
In contrast, withdrawals from a securities account during retirement are not subject to income tax but are taxed at the higher capital gains tax rate. In this respect, a pension insurance policy can offer tax advantages compared to a regular securities account.
If you already have an investment portfolio and would like to use your private pension insurance as an additional component of your retirement savings, we also recommend our article on ETF savings plans vs. ETF pension insurance. There you will also find interesting information on tax differences and comparisons.
Optimal retirement planning: What you should consider when choosing an ETF-based pension insurance policy
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