Misconception 1: The pension level indicates how much my pension will be
Hardly any other term comes up as often as “pension level” when it comes to pensions. However, few people know exactly what it means.
Common misconception: Many people believe that a pension level of 48 percent (= as of 2025) means they’ll receive 48 percent of their last gross or net salary as a pension. But that’s incorrect.
In fact, the pension level is a statistical measure that only indirectly reflects an individual’s actual pension. The pension level is the ratio of the so-called standard pension to the average earnings of all insured individuals. You receive the standard pension if you have earned the current average wage for 45 years and paid pension contributions on that amount. Anyone who meets these criteria currently receives 48 percent of the average earnings as a pension. Social security contributions are deducted from this amount, but taxes are not (see Misconception 2).
Despite these misconceptions, the pension level is important for the pension debate. This is because its development shows the extent to which retirees share in general prosperity. A declining pension level means that pensions are becoming decoupled from wages and gains in prosperity. We therefore call for the pension level to be stabilized and raised again in the medium term.
Misconception 2: My pension is tax-free
Pensions used to be tax-free. That changed in 2005. Since then, an ever-increasing portion of the pension has become taxable each year. However, the pension contributions that employees pay have been tax-free since 2023.
The transition to this so-called“deferred taxation”is complicated and protracted. It will take decades. In 2025, 83.5 percent of the pension will be taxed. Starting in 2058, the entire pension amount will be subject to tax.
The portion of the pension that is not subject to tax is called the “pension tax-free allowance.” This amount is set as a euro amount at the start of retirement and remains the same for the entire duration of pension receipt.
Important: If you were not required to pay taxes when you first started receiving your pension, you may become liable for taxes later on. This happens when your pension increases due to pension adjustments—or when other sources of income are added or increase. As a result, pensioners may exceed the so-called basic exemption amount and thus become liable for taxes.
Misconception 3: After 45 years of contributions, I can retire without any reductions
This is only true under certain circumstances. Since 2014, the “Retirement at 63” program has been in effect; its official name is “Old-Age Pension for Persons with Particularly Long Insurance Periods.” Since then, some insured individuals with 45 years of contributions have been able to retire at age 63 without any reductions.
But be aware: This applied only to a few birth cohorts. Starting with the 1953 cohort, the retirement age increases by two months for each subsequent cohort. For those born in 1964 or later, a pension without reductions is only possible at age 65.
Misconception 4: The pension insurance system has all the important data regarding my pension
That may not be the case. For employees, much of the information is automatically sent to the Pension Insurance. Nevertheless, there may be gaps in your pension record. For example, periods of continuing education or raising children. You should fill in such gaps; otherwise, your pension may be lower, or you may have to wait longer to retire.
You can request an overview of your pension account from the German Pension Insurance. Many IG Metall offices and the German Pension Insurance offer counseling services.
Myth 5: Your pension comes automatically
It doesn’t. You must apply for your pension with the Pension Insurance Fund. To do so, a brief written notice is sufficient to start with. The application should be submitted at least three months before your pension is set to begin.
