Tax rate – the wrong instrument

The tax rate is often used for pension advice. This is an error of principle.

The consequence of this: potential liability.

At first glance, using a tax rate to calculate taxes seems like a magic bullet to simplify recording and calculation. A tax rate for the pension phase is assumed or, better, requested from the customer. The taxable portion of the supplementary pension is then multiplied by the tax rate and this result is deducted as the tax burden from the gross pension. This “method” is particularly popular when comparing two pensions with different taxation rules.



Rürup pension with a monthly gross amount of approximately 1,000 euros. With the same net expenditure (of 106,952.02 euros) until 2040, gross and net pensions are compared. With an assumed tax rate of 20 percent, the basic pension is clearly more recommendable. At a tax rate of 41.11 percent, the net pensions appear to be nearly equal. The correct value for the tax rate seems unclear. Is it the marginal tax rate, the average tax rate before supplementary pension or after supplementary pension?

The check shows that it must be the mean tax rate of the supplementary pension. However, this depends on the amount of the taxable portion of the gross pension. In the example, these differ by almost 1,000 percent, so two tax rates would have to be queried. It is also assumed that the tax burden on supplementary pensions remains the same over the years. For married couples who are not the same age, this is the absolute exception. In addition, there is an abundance of tax burdens (for example, taxation of the housing subsidy account in the case of Wohn-Riester), which prohibits a uniform tax rate consideration across all pension years. In addition, the interaction between the old income and the supplementary pension is not taken into account. So it’s not the wrong amount of tax rate that’s the liability problem, it’s the use of a recognizably wrong approach.


by Dr. Johannes Fiala and Dr. Wolfgang Drols

by courtesy of (published in Versicherungsmagazin 12/2008)

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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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