Tax Burden on a Combination of Pension Income and Wages

To increase the labour force participation of pensioners, there is a current debate regarding the reduction of pension insurance contributions for elderly employees. While the discontinuation of employee contributions has a positive effect on net income, this effect is smaller than the decrease in pension-contribution payments, particularly for low incomes, due to a rise in income tax liability. For a monthly earned gross income of 1,500 €, the participation tax rate reaches its maximum of 43.4 percent when combined with a pension of 2,815 € or more. Eliminating pension insurance contributions reduces the participation tax rate by almost 20 percent for pensions of 1,500 € and 2,500 €, respectively. This has a positive effect on work incentives for pensioners.