Do I have to pay tax on my BU pension in Germany?

Documented percentages and the order of magnitude of the burden, so you can lay the three routes side by side. The figures assume a benefit of EUR 2,000 a month and a marginal tax rate of 30 percent.

If you pay for a stand alone occupational disability policy (selbstständige Berufsunfähigkeitsversicherung) yourself, the benefit counts for tax purposes as a shortened life annuity (abgekürzte Leibrente). Only the earnings share of each payment is taxed, under section 22 of the German Income Tax Act (Einkommensteuergesetz) with the table in section 55 paragraph 2 of the implementing regulation (Einkommensteuer-Durchführungsverordnung). The rest of every payment counts as a return of the capital you put in and stays free of tax.

One figure decides the amount, and it is the one most people get wrong: not your age when you took the policy out, but the expected term of the pension, meaning the years from the first payment to the end of the contract. The shorter that remaining term, the lower the earnings share. Someone who becomes disabled at 57 with a policy running to 67 is taxed on about 12 percent of the pension. Someone who becomes disabled at 37 has 30 years ahead and is taxed on about 30 percent. It sounds upside down, but it follows the logic of the table: over a short term, each payment contains more capital and less yield.

The gentle taxation of the benefit has a flip side. Premiums for disability cover fall under other provision expenses (sonstige Vorsorgeaufwendungen) in section 10 of the Income Tax Act. The annual cap there is EUR 2,800, and only EUR 1,900 for employees and anyone else who gets an employer contribution towards health insurance.

Health and long term care contributions go into that same pot first, and for almost everyone they fill it on their own. Whatever is left of the cap is usually nothing, and that is exactly what the deduction for your disability premium is worth. So when you read that disability cover is tax favoured in Germany, do not build a budget in which the premiums cut your tax bill. On a stand alone policy the advantage arrives later, in the benefit.

The second route attaches the disability cover to a Basisrente, the German first pillar pension contract also known as Rürup. A completely different deduction then applies: those premiums count as old age provision expenses (Altersvorsorgeaufwendungen) and are fully deductible up to EUR 30,826 a year in 2026, twice that for jointly assessed couples. One condition comes with it: in the view of the tax authorities, the part of the premium that pays for the disability cover must not exceed half of the total premium, otherwise the contract is no longer a Basisrente.

You pay for that advantage later. The benefit from such a contract is taxed on the deferred basis used for the state pension, at the rate of the year in which it starts: 84 percent for a start in 2026, and that rate then stays with you for good. For later years it keeps rising, reaching 100 percent in 2058. So EUR 2,000 a month becomes EUR 1,680 of taxable income instead of EUR 600 under a stand alone policy. That is a trade: a deduction today against tax tomorrow. It works out if your tax rate is high now and low when you claim, and it works against you if it turns out the other way round.

The third route runs through your employer. Premiums go into the contract from untaxed gross pay, usually free of social contributions too, and during your working life that feels very cheap. When you claim, the picture reverses: the benefit is a payment from an occupational pension scheme, so it is taxable in full, with no earnings share and no cohort rate.

On top of that comes the item that really cuts the net figure. Such a benefit is a pension type payment under section 229 of the German Social Code Book Five (Sozialgesetzbuch Fünftes Buch) and therefore carries statutory health insurance contributions at the full rate, plus long term care insurance. Only a small allowance stays free, EUR 197.75 a month in 2026. Of EUR 2,000 gross, roughly EUR 1,000 can survive tax and contributions. Anyone taking this route should set the benefit higher from the start, roughly a third above what they need net.

The table puts next to each other what happens to the premium and what happens to the benefit in each route. Read it from right to left: first the question of whether you belong to that group at all, then the consequences.

One rule of thumb follows from it. If you would depend on every euro when you claim, the stand alone policy you pay for yourself is the strongest choice, because it leaves the most in your hand. The other two routes are mainly tax decisions, not protection decisions.

With a private disability pension, tax is often the smaller deduction. The bigger one comes from health insurance, and whether it comes at all depends on your status. If you also draw a statutory reduced earning capacity pension (Erwerbsminderungsrente) and stay a compulsory member because of it, your private disability pension carries no contributions. If the private pension is all you have, you normally become a voluntary member, and then the pension counts as income used for living: health and long term care together cost roughly a fifth, as a guide 21.1 percent for someone without children. On EUR 2,000 that is a good EUR 420 a month.

If you are privately insured, no contribution is charged on the pension, but your premium carries on unchanged and the employer share disappears with the employment. On balance that is often the most expensive version. Either way the amount belongs in the calculation before you fix the level of cover. Anyone who needs EUR 2,000 net and signs up for EUR 2,000 gross has miscalculated by a quarter to a third.

This is a method and an orientation, not tax advice, and it must not replace any. Your personal tax rate, other income, joint assessment with a spouse and the exact design of the contract can move the result a long way. Mixed contracts, benefits from more than one pillar and a lump sum instead of a pension are all decided case by case. Ask a tax adviser (Steuerberater) or an income tax help association (Lohnsteuerhilfeverein) before you enter a figure, and remember that the pension goes into annex R (Anlage R) of the return.

What we can do before that: look in the policy document to see which of the three routes applies to you, read out the end age and the remaining term, and work through the net benefit so that the level of cover matches what you actually need. NAMMERT is an underwriting agent (Assekuradeur) and handles that part. Your tax adviser handles the return.