Currently in Germany, the average employee upon retirement receives a pension amounting to 48% of their gross salary. According to the German pension insurance fund Deutsche Rentenversicherung, on average across the country, a person who has worked for at least 35 years and paid pension insurance contributions during that time receives 1,219 euros per month upon retirement.
In reality, however, as Deutsche Welle notes, pension amounts vary significantly from region to region. For example, the highest old-age pensions (on average, 1,467 euros per month) are for men living in the state of North Rhine-Westphalia, while the lowest (on average, 961 euros) are for women living in Lower Saxony. But this is the average amount.
According to data from the German Federal Ministry of Labor and Social Affairs, in reality almost every second old-age pension is less than 800 euros per month. It is difficult to live on such money in Germany, so retirees often look for side jobs. To what extent can German pensioners work? And does additional salary affect the amount of pension payments?
Where pensioners work
According to the Federal Statistical Office, at the end of 2017 (the latest such data), the share of pensioners with side jobs aged 65 to 69 was 16.1% in Germany – more than double that of ten years earlier. There are significantly fewer working pensioners among women (12.3%) than among men (20.2%). But where do German pensioners work?
Mainly, elderly people are employed in sectors such as car trade and auto repair (175,000 people), healthcare and social services (141,000), manufacturing (127,000), technical maintenance (115,000), business services (93,000), construction (75,000), and education (66,000).
How much can they earn
Anyone who has retired in Germany is allowed to work on the side, without restrictions. However, working pensioners must pay income tax. The tax-free minimum income for a single person since 2019 is 9,168 euros in Germany.
Contributions to the statutory health insurance fund are deducted from the additional salary. However, contributions to unemployment insurance and pension insurance are not deducted from additional earnings for obvious reasons. Only those pensioners who work for a minimum wage of 450 euros per month are completely exempt from paying taxes and insurance contributions.
Like all taxpayers, pensioners are entitled to include in their tax return expenses related to earning income. These may include, for example, travel expenses for commuting to and from work, contributions to statutory health insurance and long-term care insurance, liability insurance, church tax, and donations.
Rules for "early" pensioners
In Germany, the retirement age depends on a person's year of birth. Those born before 1947 become pensioners at age 65. For people born between 1947 and 1964, one month is added to the retirement age of 65 for each year. For example, someone born in 1956 will retire at age 65 and 10 months, while someone born in 1958 will retire at age 66. This limit is gradually increasing, and in 2029 the age threshold will reach 67.
It is also possible to retire early at age 63. In this case, the employment period must be at least 35 years. Many Germans use this legal option. However, a full pension can only be claimed in this case with at least 45 years of employment.
In any case, those who retire early before reaching the statutory retirement age are also allowed to work on the side, but only in the form of a Minijob, i.e., for a minimum wage: their earnings must not exceed 450 euros gross per month.
However, twice a year the salary can be twice as high: such additional payments will be considered as holiday pay (Urlaubsgeld) and Christmas bonus (Weihnachtsgeld). The upper earnings limit is 6,300 euros. With higher additional income, the early pension (Frührente) will be reduced or even canceled until the person reaches the statutory retirement age. Only then can the pensioner work as much as they want.
In Germany, it is also possible to retire early due to health reasons. There are no age restrictions here. Pensioners in this category also have the right to work on the side, but they can earn a maximum of 450 euros gross per month (and twice a year, double that). Those with higher additional salary risk losing their state pension.
Who pays the pension tax
Since 2005, Germany has had a so-called "pension tax." Its amount depends on the year of retirement. For those who retired in 2005 or earlier, the taxable portion of the pension is only 50%. Until 2020, the taxable share increases by 2% each year, and then will increase by 1% annually.
For example, if you became a pensioner in 2018, 76% of your pension is subject to taxation. For those who retire in 2040 or later, pensions will be fully taxed. The obligation to file a tax return only ceases if the pensioner's total income does not exceed the basic tax-free allowance (Grundfreibetrag). In 2019, this is 9,168 euros. If the pensioner's income does not exceed this amount, they are not subject to taxation.