Taxation of private disability insurance pension: tables and practical examples for clarity
24/05/25
10
Minutes
Katrin Straub
Managing Director at nextsure
The taxation of your private occupational disability pension (BU pension) often seems complex. However, with the right understanding of the annuity portion rule and a look at the current table, you can save real money. This article explains the details and shows you how it works.
The topic in brief and concise terms
The taxation of a private disability pension applies only to the small taxable portion, which is based on the remaining term and is often below the tax-free allowance.
A special table in Section 55 of the EStDV lists the exact taxable portions for the taxation of the private occupational disability pension.
Disability pensions from Rürup contracts or occupational pension schemes are generally taxed much more heavily when benefits are paid than private disability pensions.
Quick Facts: The key facts about taxation of disability pensions
Taxation of private occupational disability pensions (third pillar) is based on the income yield share. This share is often lower than the annual tax-free allowance, which is, for example, over eleven thousand euros.
The decisive factor for the income yield share is the remaining term of your pension at the time the pension begins. A special table in the Income Tax Implementing Regulation (§ 55 EStDV) lists the exact percentages.
Contributions to private disability insurance can be claimed as other pension expenses. However, the maximum amount is often already exhausted by health and long-term care insurance contributions.
In addition to the private disability pension, there are disability cover arrangements via the basic pension (Rürup) or occupational pension provision. These are subject to different, usually higher, tax charges when benefits are paid out.
Understanding the earnings share table in detail
The key factor in the taxation of your private disability pension is the income component rule. The legislator assumes that your pension payment contains an interest component, and only this is taxable. The amount of this income component is determined by the expected term of the pension.
The shorter the remaining period for which your disability pension is payable, the lower the taxable income component. You can find the exact values in the table in section 55, paragraph 2 of the Income Tax Implementing Regulation (EStDV). Here is an excerpt:
Remaining term 1 year: zero per cent income component
Remaining term 5 years: five per cent income component
Remaining term 10 years: twelve per cent income component
Remaining term 15 years: sixteen per cent income component
Remaining term 20 years: twenty-one per cent income component
Remaining term 25 years: twenty-six per cent income component
Remaining term 30 years: thirty per cent income component
Remaining term 37 years: thirty-six per cent income component
This table is the basis for calculating the taxable portion of your disability pension. A suitable calculator can provide an initial indication here. The correct application of this table is crucial for your tax liability.
Practical examples: How the income share affects things
Theory is good, practice is better. Let’s look at two examples of the taxation of a private occupational disability pension. Suppose the annual personal allowance is eleven thousand six hundred and four euros (as of 2024, subject to change).
Example one: A person becomes unable to work at the age of 47 and receives a monthly occupational disability pension of two thousand euros. The pension runs until the age of 67, so there are still twenty years remaining. According to the table, the taxable portion at twenty years remaining term is twenty-one per cent. This means: 2,000 euros x 21% = 420 euros. On an annual basis, that is 5,040 euros (420 euros x 12). This amount is below the personal allowance. As a result, in this case there is no income tax on the occupational disability pension, provided there are no other significant sources of income.
Example two: A person becomes unable to work at the age of 30, and the pension runs until the age of 67 (37 years remaining). The taxable portion is thirty-six per cent. With an occupational disability pension of 2,500 euros per month, the taxable amount is 900 euros (2,500 euros x 36%). On an annual basis, this amounts to 10,800 euros (900 euros x 12). This amount is also still below the assumed personal allowance of 11,604 euros. Knowledge of the tax liability of the occupational disability pension is crucial here. These examples illustrate how the taxation of a private occupational disability pension works in practice.
Expert depth: Legal foundations and special cases
The legal basis for the taxation of the private BU pension (third pillar) is § 22 Nummer eins Satz drei Buchstabe a Doppelbuchstabe bb of the Income Tax Act (EStG) in conjunction with § 55 of the Income Tax Implementation Ordinance (EStDV). This regulates the application of the earnings share for temporary annuities, which includes the BU pension.
Our expert tip: take note of the so-called benefit escalation. If your BU pension increases each year when a claim is made to offset inflation, this increase is often fully taxable, not just at the earnings share rate.
What happens if you have other income? If, in addition to the BU pension, you have other income, for example from rental and leasing or a statutory reduced earning capacity pension, these are added together with the earnings share of the BU pension. If the total exceeds the basic tax allowance, tax becomes due. Information on compulsory health insurance is also relevant. The correct declaration in your tax return is essential here.
Correctly declare disability pension in your tax return
The private disability pension you receive belongs in Annex R (pensions and other benefits) of your income tax return. There you enter the gross annual pension and the taxable portion of the earnings. The insurance company will usually issue you with a certificate containing the necessary figures for the tax office.
Contributions to self-employed disability insurance can be entered in the Annex Vorsorgeaufwand as “other miscellaneous insurance expenses” (e.g. line 45 or 47, depending on the tax year). However, the deduction is limited by maximum amounts (e.g. EUR 1,900 for employees), which are often already reached through contributions to health and long-term care insurance. A tax deductibility of BU contributions is therefore in practice only possible to a limited extent for many. Nevertheless, correct declaration is important.
The following points should be noted in the tax return:
Use Annex R for pension income.
Determine and enter the earnings component correctly.
Keep the insurer’s certificate to hand.
Check contributions in the Annex Vorsorgeaufwand.
Careful completion of your tax return secures possible benefits for you. The question of which insurance policies are tax-deductible is a larger topic.
Comparison: Private BU pension versus Rürup BU and bAV BU
In addition to private disability pension (pillar three), there is the option of combining disability insurance cover with a Rürup pension (basic pension, pillar one) or occupational pension provision (bAV, pillar two). The tax treatment in the event of a claim differs significantly.
With a disability pension from a Rürup policy, the taxable portion increases every year. For a pension start in 2023, for example, it would be eighty-three per cent; by 2040 (or later, depending on legislative developments), it will be one hundred per cent. In return, the contributions are more tax-deductible during the accumulation phase.
A disability pension from occupational pension provision is generally fully taxable in the event of a claim, similar to earned income. In return, the contributions during the savings phase are often exempt from social security contributions and tax. The private disability pension is usually the most tax-efficient option in the event of a claim. This also influences whether the private disability pension counts as income with the health insurer.
To structure the taxation of your private disability pension optimally, you should bear a few points in mind. A precise knowledge of the current table of taxable portions and the basic tax-free allowance is the first step. Check annually whether allowances or tax rules have changed.
Document all relevant insurance documents and consult a tax adviser. They can best assess your individual situation and take all types of income into account. Early and correct planning can secure you significant tax advantages.
Our expert tip: When taking out disability insurance, the pension amount should be calculated so that, even after any deductions for tax and health insurance, it still covers your needs. A gross pension around twenty per cent higher in combination with a Rürup pension or company pension scheme may be necessary in order to receive the same net amount as with a private disability policy. You can find more on the topic of insurance and tax in our blog. The complexity of the subject underlines the value of individual advice.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive concrete suggestions for optimisation.
More useful links
The Federal Ministry of Finance offers a document on the taxation of annuities, which explains important legal principles.
Another document from the Federal Ministry of Finance examines the tax incentives for private retirement provision.
Haufe offers an article on annuities from private pension insurance policies, which contains relevant information for taxation.
Also from Haufe is an article on annuities from private insurance policies, which provides more in-depth insights.
Steuertipps.de provides information on the tax exemption of private pensions from tax-privileged old contracts with a capital option.
The income share table is explained in detail on Steuertipps.de, which is relevant for calculating the disability pension.
The German Pension Insurance provides a definition of the income share in its glossary.
Steuern.de provides guidance on Schedule R of the tax return, where pension payments are to be entered.
Lohnsteuer-kompakt.de discusses the tax exemption of pensions from old contracts before 2005 and possible risks.
Wikipedia provides a general overview of disability insurance.
FAQ
What does the taxable portion mean for the taxation of a private occupational disability pension?
The taxable portion is the part of your private occupational disability pension that is treated as interest income and therefore must be taxed. Its amount is regulated in Section 55 of the German Income Tax Implementation Regulation (EStDV) and depends on the expected remaining term of your pension.
How is the private occupational disability pension reported on the tax return?
The private occupational disability pension is entered in Annex R of your tax return. Contributions to occupational disability insurance can be claimed in the Vorsorgeaufwand annex, although maximum amounts must be observed.
What role does the basic tax-free allowance play in the taxation of disability insurance pensions?
The personal allowance is an annual amount up to which no income tax has to be paid (e.g. EUR 11,604 for single people in 2024). If the taxable share of your occupational disability pension (possibly plus other income) is below this allowance, your pension payments remain effectively tax-free.
Are increases to my disability pension (benefit escalation) also taxable only on the income portion?
No, increase amounts from an agreed benefit escalation in the event of a claim are generally fully taxable and not just at the original taxable portion.
Are there differences in the taxation of a private disability pension and disability pensions from occupational pension schemes or Rürup?
Yes, significantly. Private disability pensions are taxed only on the small earnings component. Disability pensions from occupational pension schemes are usually fully taxable, and for Rürup BU the taxable portion increases until it is taxed in full.
Where is the statutory basis for the earnings portion table for private occupational disability pensions?
The relevant table for the taxable portion of term-limited annuities, such as a private disability pension, can be found in Section 55(2) of the Income Tax Implementing Regulations (EStDV).
