Unveiling the Pension Tax-Free Limit for Retirees
Aim for pension without tax deductions: Find out qualified amount. - Question rephrased: Determining the pension amount exempted from tax payments
Want to know how much pension money you can pocket tax-free? Here's the scoop.
- Article by Nadine Oberhuber
- Reading Time: Approx. 2 minutes
The Ministry of Finance keeps an eye on it every year: In 2025, new retirees are eligible to receive 17,359 euros in annual gross pension without having to shell out taxes on it. This figure is applicable to single individuals, and for couples, it doubles. Those who started receiving their pension in 2005 could even get a whopping 23,516 euros without facing tax consequences, thanks to the ongoing gradual adjustment of pension taxation initiated since 2005. The tax-free allowance decreases year by year for new retirees, which gradually increases the proportion of the pension that is taxed.
Last year, 83 percent of the gross pension was subject to taxation. The original plan was to make 100 percent of it taxable by 2040, but now full taxation will only kick in from 2058, as per the Growth Opportunities Act. In other words, pensions are taxed later, and each year, workers can contribute a slightly larger amount of their income to their retirement savings without it being taxed.
Who Needs to File a Tax Return?
The goal of this regulation is to create a sense of fairness in retirement savings and to motivate younger individuals to save privately. Since they initially pay these contributions from their taxable income, only the payouts from such retirement contracts are later taxed. Retirees, it's assumed, will have lower tax rates. So, if you saved for retirement, you might have a small tax advantage.
This means: If your pension income in the previous year (2025) surpassed 12,084 euros, irrespective of when you retired, you generally need to submit a tax return. For the current year (2026), the threshold is 12,640 euros. This amount is the current tax-free allowance for retirees, and from here, taxation generally applies, which is approximately 1,000 euros in pension per month, given that the retiree can't claim any other deductions. However, retirees may have advertising costs and special deductions or can claim extraordinary burdens, which may result in a higher total income—still tax-free. To confirm this, the tax office will need to evaluate each case individually.
The Taxable Portion of the Pension: 83 percent
The Ministry of Finance calculates the taxable portion of the pension like this: For 2025, the highest annual gross pension that new retirees can receive tax-free is 17,359 euros per year, which amounts to 1,447 euros per month. The taxable portion of their pension is currently 83 percent, so only 13,855 euros of these 17,359 euros are subject to taxation. From this, retirees can still deduct the advertising cost allowance of 102 euros, the special expenses allowance of 36 euros, and retirement provisions of up to 1,739 euros. This results in the 12,084 euros for the year 2025.
Long-term retirees who started receiving their pension in 2005 can still receive 50 percent of their pension income tax-free, up to 23,516 euros, which is 1,959 euros per month, without being taxed.
- Tax
- Pension Taxation
- New Retirees
- BMF
Additional Insights:
Personal Allowance: For the 2026/27 tax year, the Personal Allowance in the UK is £12,5706, implying that up to this amount, income from pensions, state pensions, or other sources remains tax-free.
Tax-Free Lump Sum: In defined contribution (DC) pensions, individuals can claim up to 25%1 of their pension pot as a tax-free lump sum, which does not affect the Personal Allowance but may impact the overall tax due on the remaining pension income, given the presence of other income sources2.
[3]: https://www.gov.uk/hm-treasury/consultation/3-consultations/annual-allowance- consultation-2021
- In the given text, it emphasizes that the tax-free limit for retirees in 2025 is 17,359 euros for singles, and this figure gradually decreases over the years for new retirees, with full taxation scheduled for 2058, as per the Growth Opportunities Act.
- The article also mentions that, if your pension income in 2025 surpassed 12,084 euros, you generally need to submit a tax return, as this is the current tax-free allowance for retirees.
- Regarding the taxable portion of the pension, the text explains that in 2025, 83 percent of the pension is subject to taxation for new retirees.
- Furthermore, the text touches upon personal-finance matters, mentioning that in the UK for the 2026/27 tax year, the Personal Allowance is £12,570, implying that income up to this amount remains tax-free.
