Company pension as a lump sum: tax and health-insurance contributions

If a company pension or direct insurance is paid out as a one-time capital amount, it is subject to tax and contributions. The concentrated payout can drive up the tax, the one-fifth rule can mitigate this. Those insured under the statutory scheme also pay health-insurance contributions, whereby an allowance applies.

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A lump-sum payout from the company pension scheme is as a rule fully taxable. For the concentrated payout, the one-fifth rule (reduced taxation of extraordinary income) can reduce the tax burden.

Those compulsorily insured under the statutory health insurance pay health and care insurance contributions on the payout, but only on the part above an allowance and spread over ten years. This surprises many.

What you should do now

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1. Clarify the taxation
Clarify how the payout is taxed and whether the one-fifth rule is applicable.
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2. Plan for health-insurance contributions
Reckon with health and care insurance contributions on the part above the allowance, spread over ten years.
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3. Use the one-fifth rule
Check whether the reduced taxation applies and apply for it in the tax return.
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4. Weigh the payout form
Before deciding on capital or ongoing pension: compare the tax and contribution consequences of both variants.

How to spot the scam

The high health-insurance contributions on the payout are not planned for.
The one-fifth rule is not applied for although it could apply.
The concentrated payout unnoticeably drives up the tax rate.

Frequently asked questions

Is a one-time company pension taxed?

Yes, a lump-sum payout from the company pension scheme is as a rule fully taxable. Because it accrues in a concentrated way, it can raise the tax rate. The one-fifth rule can mitigate the tax on such extraordinary income.

Do health-insurance contributions arise?

For those compulsorily insured under the statutory health insurance, yes: health and care insurance contributions become due on the payout, but only on the part above an allowance and, in calculation terms, spread over ten years. This surprises many recipients.

Is capital or an ongoing pension worthwhile?

That depends on the individual case, on the tax rate, health-insurance status and personal planning. Compare the tax and contribution consequences of both variants before you decide, and get professional advice when in doubt.

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General information for self-help, not legal advice (RDG). In case of a high loss or uncertainty: contact a consumer advice center or a lawyer.