The amount of the gross pension may sound somewhat reassuring, but pensioners also have to reckon with deductions for taxes and social security contributions. Above all, health insurance plays an important role. Read here how you can save.
No, nothing in life is free. Neither does the pension. After all, you still have to pay health and long-term care insurance contributions when you retire. In addition, more and more women and men, even as retirees, are obliged to pay taxes at the tax office. So far so bad.
In order to estimate the financial needs in old age, it is worthwhile not only to have the expenditure side for living and living, but also the gross income and the reduction of this due to any tax burden and the statutory deductions for nursing care and health insurance, like the Stiftung Warentest warns. It is worth taking a closer look at the latter in particular in order to avoid paying higher contributions during retirement.
Most retirees are insured with a statutory health insurance fund. The amount of your contributions depends on your income. The decisive factor is whether they are voluntarily or compulsorily insured. Because compulsory insurance can be significantly cheaper for pensioners than voluntary. In principle, anyone who has had statutory health insurance or family insurance for 90 percent of the second half of their working life is allowed to join the health insurance for pensioners (KVDR). This also applies if you had voluntary statutory health insurance in your professional life. Children have also been included in the calculation of the pre-insurance period since 2017. Parents receive a flat rate of three years per child as pre-insurance time, which is automatically added to the second half of working life. It doesn't matter who actually raised the children. The Hamburg Consumer Center (VZHH) draws attention to this.
The KVDR is not an independent health insurance company. Rather, KVDR is a status that legally insured retirees can have - or not - with any statutory health insurance company.
Unlike people who are voluntarily insured under the statutory pension system, pensioners with the corresponding status do not have to pay a minimum contribution that is independent of the pension amount and no health insurance contributions on income from assets, renting and leasing. The same applies to benefits from life insurance, Riester or Rürup pensions, a pension from private pension insurance or a pension from statutory accident insurance.
In the case of benefits from a company pension scheme, insured persons with KVDR status are entitled to 14.6 percent of the benefit plus additional contribution to health insurance. However, only for the payout that is above the allowance of 169.75 euros. The contribution to long-term care insurance is due for the entire payment from company pension schemes as soon as this is above the stated exemption limit.
In the case of voluntary statutory health insurance, however, 14.6 percent of the gross pension plus additional contribution are due depending on the fund. The pensioner pays half of the contribution, and his share is deducted before the pension is paid out. He can receive the other half on application as a subsidy from the German pension insurance. Here, too, the pensioner pays the contribution to long-term care insurance alone.
The contribution rate for health insurance is the usual 14.6 percent as well as the individual additional contribution, which will average 1.6 percent in 2023. For pensioners, the German pension insurance, like an employer, takes over half of the health insurance contributions on the pension. For both compulsorily insured and voluntarily insured members, the total income is only taken into account up to the contribution assessment limit of EUR 4,987.50 per month or EUR 59,850 per year (as of 2023) - this applies to pensioners as well as employees. For those who are voluntarily insured, the maximum contribution for health insurance in 2023 is around 808 euros per month on average.
If you have statutory health insurance, you are automatically also in statutory long-term care insurance. Pensioners also have to plan contributions for this. If you have children, you currently pay a contribution rate of 3.05 percent. This sentence also applies to childless people who were born before 1940. Everyone else pays a 3.4 percent contribution rate.
The VZHH gives an example of how big the difference can be between a KVDR compulsorily insured and a voluntarily insured pensioner. A KVDR-compulsorily insured pensioner with a pension of 1000 euros, 250 euros in rental income and 150 euros from a company pension scheme pays 8.1 percent contributions (half of 16.2) on a pension of 1000 euros – i.e. 81 euros. The rental income and the company pension (free allowance 2023: 169.75 euros) remain non-contributory.
A voluntarily insured pensioner with the same income - 1000 euros pension, 250 euros rental income and 150 euros company pension - also pays 8.1 percent contributions on the 1000 euros pension. However, he not only pays contributions on the further income, but also has to pay them completely himself. He pays 23.85 euros (16.2 percent of 150 euros) on the company pension. A reduced contribution rate of currently 15.6 percent (14 percent plus 1.6 percent additional contribution) applies to rental income, but this must also be borne alone. In the example, 15.6 percent of 250 euros results in 39 euros. With KVDR status, the pensioner would save 62.85 euros per month and several 100 euros per year.
For employees with high annual incomes - with a salary up to the compulsory insurance limit in 2023 of 66,000 euros, employees are compulsorily insured in a statutory health insurance company - or self-employed people who are voluntarily insured and retired, it can therefore be worthwhile to apply to the health insurance company ask for their insurance status to be checked. In principle, it is also possible to switch to the KVDR at a later date.
Although pensioners can look forward to hefty increases in their salaries in recent years, many of them are asked to pay by the tax office. Because they have to pay taxes on their pension. This is always the case if the taxable income exceeds the annual basic allowance of 10,908 euros (double the amount applies to married couples). At least then a tax return is due. According to the Federal Ministry of Finance, last year's pension increases brought in additional income of at least 730 million euros. The total number of taxed pensions added up to almost six million after the increase.
However, it is not just the amount of the pension that matters, but also when someone retired. Pensions have only been partially taxed since 2005. Up until 2005, half of the pensions received were still tax-free. By 2023, 84 percent of the pensions are already taxable. Because every year the percentage of the taxable part of the pension for the respective new pensioners increases by two percentage points. After that, it only increases by one percentage point for new pensioners. All pensions beginning in 2040 or later will then be 100 percent taxable.
The background to the dynamic pension taxation is the conversion of taxation to a downstream system. This means that the contributions to the pension insurance can be deducted from tax during the working life and the pension must be taxed in the payment phase.
At the very least, an income tax return is due if the total amount of a pensioner's income exceeds the basic allowance valid for the corresponding year. This can also affect long-term existing pensioners. The good news is that the pension allowance will remain the same in subsequent years. For seniors who have been drawing a pension since 2005, 50 percent of the pension payment from 2005 will always remain tax-free in 2022. The exempt amount refers to the specific amount of money and not to a portion of the respective pension. Future pension increases must therefore be fully taxed.
It should be noted that income does not only mean the statutory pension, but all income. So, among other things, rental income, payments from a company, Riester or private pension and investment income. For example, if the total amount of income for this year is EUR 16,000 for a single new pensioner, 84 percent of this (EUR 13,440) exceeds the basic allowance of EUR 10,908. The individual allowance is thus 2560 euros. A tax return of 13,440 euros is therefore due.
The amount of tax actually incurred depends not least on which expenses can be claimed for tax purposes from the tax office. Similar to working taxpayers, pensioners also have the opportunity to deduct various costs in their tax returns. This also includes health and long-term care insurance contributions, church tax, donations, contributions to insurance such as accident or liability insurance, and health expenses.
The same applies to the costs that pensioners incur if they have the complex matter explained to them by an income tax assistance association or a tax consultant or if they want to have it checked whether there is a tax liability. Which is not a bad idea, because pensioners also have an obligation to bring the tax office. So you shouldn't wait for the authority to knock on your door. Otherwise, this form of retirement can also lead to additional payments and sanctions in the form of penalty interest.
(This article was first published on Tuesday, February 21, 2023.)
