How is a private pension taxed in Germany?

Taxable shares under the German Income Tax Act, as of September 2026.

You paid your contributions out of income that was already taxed. So the state only taxes the part of each payment that comes from interest and investment returns. The law puts a fixed number on that part, the Ertragsanteil.

The number comes from a table in the Income Tax Act and depends only on the age you have reached when the pension starts. Start earlier, and the pension is expected to run longer, so a larger share counts as return.

Once set, the share never changes. If your pension later rises through profit participation, the same percentage keeps applying.

Many contracts let you choose a one off payout instead of a lifelong pension. Then a different rule applies: the taxable amount is the payout minus the total of your contributions.

If the money is paid after your 62nd birthday and at least twelve years after you signed, only half of that gain is taxable. For contracts signed before 2012, age 60 is enough.

That half is taxed at your personal income tax rate, not at the flat 25 percent capital gains rate. In fund linked contracts, 15 percent of the fund returns are tax free first.

Miss either condition, age or term, and the full gain is taxable. Cancelling in year eleven can therefore cost real money.

With a Rürup pension you could deduct contributions from your taxable income while saving. In return, the pension is taxed almost in full. If it starts in 2026, 84 percent is taxable and the rest stays tax free as a fixed euro amount for life.

A Riester pension received state bonuses and tax relief, so every payout is fully taxable, whether pension or partial lump sum.

Subsidised is not automatically better. What matters is whether your tax rate in retirement is lower than today.

Many international employees retire somewhere else. Where a private pension is taxed after a move depends on the double tax treaty between Germany and your new country of residence. Often the new country gets the right to tax it, but not always.

The German insurer keeps paying either way. Before you move, ask the tax office or an adviser in both countries which rules apply, especially if you plan to take a lump sum.

Taxable does not mean you pay tax. If your total income stays below the basic tax free allowance, the income share costs nothing. Always add up your state pension, rent and interest.

Small contracts involve small sums. 200 euros a month from age 67 give 408 euros of taxable income a year, which rarely means more than 100 euros in tax. Planning pays off mainly for large lump sums and when several pensions start in the same year.