Additional earnings to the pension

Many retirees don't want to retire quite yet, but want to earn a little extra money. Sometimes this is because they still want to be useful in their working lives or continue to pursue exciting projects. Sometimes the additional income is a necessity to supplement the pension. There are two things to consider when it comes to supplementary income: First, under certain circumstances, your pension can be reduced if you earn too much. This is especially true if you retired early or receive a widow's pension. And secondly, there is the question of how much additional income is tax-free. We will answer both questions in this text. In addition, we give you tips on what you should bear in mind when earning additional income.

To answer this question, your age is decisive: If you have exceeded the standard retirement age, you can generally earn an unlimited amount of additional income without having your pension reduced. In this case, you do not have to inform your pension insurance institution about your additional earnings. However, taxes may be due under certain circumstances (see below). The standard retirement age is between 65 and 67, depending on your year of birth.

The situation is different if you receive an early retirement pension, for example, the "pension from 63" or an early retirement pension for people with severe disabilities. In this case, you must comply with certain additional earnings limits in order to retain your pension entitlement. If you exceed these limits, you will only receive a partial pension. The higher your earnings, the lower your partial pension. In extreme cases, you could lose your pension entitlement completely. This means in detail:

• Until you reach the standard retirement age, there is an additional earnings limit of 6300 euros per calendar year. As long as you remain below this threshold, you will receive your pension in full. You do not have to report the additional earnings to your pension insurance institution. (However, you may have to report it to the tax office).
• Anything in excess of this must be reported to the pension insurance institution, because it leads to a deduction from your pension. The additional income above the limit of 6300 euros per year is divided by 12 to calculate an average monthly income. 40 per cent of this is then deducted from your pension. In the end, you are still left with considerably more than if you had earned nothing. But the deduction can be very painful.
• Additional income is deducted completely if you earn more than your so-called supplementary income cap. This is calculated individually and depends on your income in the last 15 years before the start of your pension. The year with the highest income is important here; it counts as the supplementary income cap. If your (reduced) pension and one-twelfth of your annual income exceed this supplementary income cap, everything above it will be deducted completely from your pension.

Let's take a look at it again: Once you have reached the standard retirement age, you can earn an unlimited amount of additional income without having your pension reduced. (Taxes may still be due, however.) If you have not yet reached this age, limits apply:

• Up to the additional earnings limit of 6300 euros per year, nothing is deducted from your pension.
• Earnings above the supplementary earnings limit, but below the supplementary earnings cap, are deducted from your pension at a rate of 40%.
• Earnings above the supplementary earnings cap are deducted from the pension at 100 per cent. In extreme cases, this can mean that you no longer receive a pension at all.
• As soon as you reach the standard retirement age, these restrictions no longer apply to you.

Survivors' pensions are intended to relieve the financial worries of widows, widowers and orphans. If you earn money on top of your widow's pension, however, this is only deductible up to a certain limit. Calculating this tax-free amount is somewhat complicated. It depends mainly on the current pension value. The advantage of this is that the survivor's pension automatically increases when pensions rise. Another factor in the calculation is the place of residence: in the new German states the tax-free amount is somewhat lower than in the old ones. And finally, the tax-free amount may increase if you have children who are entitled to an orphan's pension (regardless of whether they actually receive an orphan's pension). This is the case, for example, if they are still in education.

For pensioners (without children entitled to an orphan's pension), the tax-free amount is currently 872.52 euros per month in the old federal states and 841.90 euros in the new federal states.

If your net income exceeds this amount, 40 percent of it will be deducted from your pension. The widow's pension is then reduced.

Whether the pension is reduced when additional income is earned is only one side of the coin. The second side concerns taxes, because these can also reduce the income considerably. The following applies here: a mini-job up to 450 euros per month is tax-free. Apart from that, the question of taxes depends on your pension allowance and the currently applicable basic allowance. You can find more detailed information in our article "Pension taxation: How much tax do pensioners pay? (By the way, your age is not decisive for taxes: Whether you have already reached the standard retirement age makes no difference for the calculation.

These tips can help you:

• Before you take a job, you should get detailed advice on the financial consequences for you and how much of your earnings will be left over in the end. Also consider the additional bureaucratic work, for example, through a tax return. Is it worth it for you? It's best to decide in advance.
• Even if you have a higher additional income, as a pensioner you no longer have to pay your own contributions to the pension insurance. In some cases, however, it can make sense to pay these contributions voluntarily: They increase your pension a little every year. Whether this is worthwhile depends on the individual case. It is best to ask your pension insurance provider for advice on this question.
• Special rules apply to the supplementary income limit for 2020: Due to the Corona crisis, this limit was raised from 6300 to 44590 euros. As long as your annual income is within this range, you do not have to expect a reduction in your pension. However, this only applies to the year 2020.