GERMANY – The Bundesrat, the upper chamber of parliament, has approved the pension taxation bill, which ends tax privileges for one fourth of pensioners in the country but makes contributions to supplementary pensions tax-free.
Through the new Alterseinkunftgesetz bill, annual contributions paid by employers to supplementary or top-up pensions would be made gradually tax free until 2025, when they are expected to be tax-exempt. The first step would be to make contributions 60% cheaper for employers as immediate tax-exemption would have cost the government about €20bn.
But pensioners, who have so far enjoyed tax privileges, will gradually pay more tax on their income from next year until 2040. The taxable part of pensions is going to increase by two percentage points every year until 2020 and by one percentage point afterwards until 2040.
Retired workers, including those with life annuities, with up to €18,900 a year will still be exempt from taxes, while couples have been given twice this tax-break. Previously, pensions up to €38,000 have been tax exempt and so only two million pensioners have been liable to pay taxes.
From now on, according to a Finance Ministry estimate, 3.3 million pensioners should pay taxes, 23% of the retired workforce, while 10.9 million, 77%, would still have the tax-breaks.
The new bill, which has already been passed by the lower chamber has split public opinion. Unions have showed mixed feelings and the opposition has criticised it as complicated and inconclusive.
Ex-labour minister Walter Riester, who is the architect of the reform that bears his name, said: "We are in a long-term reform process."