Tax-Free Retirement Income: How Much Can You Get in 2025?
Can one collect a pension tax-free amount? - What's the potential pension amount exempted from tax payments?
Let's dive into the topic of retirement income, and more specifically, how much pension you can receive without paying taxes. We'll take a closer look at the tax-free allowance for new retirees in 2025 and how it compares to the current state pension.
by Nadine Oberhuber** + - 2 Min
The authorities have set a tax-free limit for retirees each year, starting from 2024. For instance, in 2024, new retirees who were singles could enjoy a gross pension of up to €16,243 annually without having to fork over taxes on it. To put things in perspective, for a couple, this figure doubles. Older retirees who entered retirement in 2005 could pocket as much as €19,758 tax-free annually. This is due to the gradual adjustment of pension taxation taking place since 2005. Keep in mind that this tax-free allowance drops by a few euros each year, considering the increase in the proportion of the pension that gets taxed accordingly.
Last year, a staggering 83 percent of the gross pension was subject to taxation. Initially, it was supposed to be 100 percent by 2040, but, thanks to the Growth Opportunity Act, this won't happen until 2058. This means that pensions are now taxed later, allowing workers to contribute slightly more of their income towards retirement savings each year without getting taxed on it.
Tax Returns for These Retirees
The regulations aim to create a fairer retirement savings system and encourage younger individuals to save privately. Those saving for retirement can save the amounts straight from their untaxed gross income, and then only the payouts from these retirement plans are taxed. Assuming lower tax rates for retirees, this may provide a small tax advantage for savers.
Currently, anyone who had over €11,604 in pension income in the previous year (2024) is required to file a tax return, regardless of their retirement date. This limit is set to increase to €12,084 in the current year 2025. Any retiree with a pension income below this level would be tax-exempt. However, despite the limit, retirees might still be able to claim tax relief for expenses like advertising costs, special assessments, or extraordinary burdens, pushing their total income above the allowance without tax implications.
Taxable Portion of the Pension
The calculation for the taxable portion of the pension is as follows. In 2024, the highest annual gross pension that new retirees could receive without being taxed was €16,243. The taxable proportion of this pension currently stands at 83 percent, meaning that only €13,481 of it is subject to taxation. Following deductions for advertising costs (€102), special expenses (€36), and retirement provisions (up to €1,739), retirees are taxed on €11,604.
Long-term retirees who entered retirement in 2005 can still receive 50 percent of their pension income tax-free, equating to a maximum of €19,758 annually.
- Tax
- Pension taxation
- New retirees
- BMF
A Glimpse at the UK's Tax System
Let's take a quick look at the UK's tax system and how it compares.
As of 2025, the personal annual allowance for income tax in the UK is £12,570. Income below this threshold isn't taxed. Retirees with only state pension income would unlikely pay income tax, as the maximum annual income from this source is approximately £11,973.
Pension Taxation and the State Pension
Pension taxation in the UK is based on the overall income of the individual. While the state pension is taxable, it only gets taxed if the total income exceeds the personal allowance. Here are some key points regarding pension taxation:
- Rising State Pension: The state pension is increasing annually, which may lead to more retirees paying income tax if their total income surpasses the personal allowance.
- Frozen Personal Allowance: The personal allowance is frozen at £12,570 for the tax year 2025/26, and with the annual increase in the state pension, retirees relying solely on their state pension may start paying income tax in future years.
- Taxation of Additional Income: If retirees have additional income sources like annuities or other pensions, and their total income exceeds the personal allowance, they will pay income tax on the excess.
- Tax Rates: The basic rate of income tax is 20%, and if a retiree's income exceeds the personal allowance, they will pay 20% tax on the excess.
[1] Retirement How much pension can I have without paying taxes? - enchi.ai[2] Full rate of the new state pension from 6 April 2025 - GOV.UK[3] Personal Tax Allowances - gov.uk, retrieved 2023-04-12[4] How much income tax will you pay in the current tax year? - gov.uk, retrieved 2023-04-12[5] Changes to Lifetime Allowance - gov,uk, retrieved 2023-04-12. Enrichment data.
The Community policy and employment policy are instrumental in shaping the retirement landscape, influencing pension taxation procedures and the availability of tax-free retirement income. are vital in managing personal finances and wealth-management strategies, helping individuals to plan and save for tax-efficient retirement.
In the UK, the personal annual income tax allowance for the year 2025 stands at £12,570, meaning that state pension income below this threshold will not be taxed. On the other hand, the taxable proportion of a pension in Austria, for instance, is determined by the gross pension amount and can result in a significant portion of the pension being subject to taxes.
