Lump-sum option in occupational pension schemes - The one-fifth rule does not apply
Lump-sum payments from occupational pension schemes repeatedly raise the issue of the reduction in the tax rate pursuant to Section 34 of the German Income Tax Act. The key question here is whether or not this is extraordinary income.
The Federal Fiscal Court (Bundesfinanzhof, BFH), in its ruling of 30.10.2025 (case reference: X R 25/23), clarified that when the contractually granted lump-sum option is exercised the income is not deemed to be extraordinary. The remuneration may admittedly be payable for work carried out over several years. However, it lacks the requisite extraordinary nature.
In the opinion of the court, capital payouts in occupational pension schemes are now common practice and therefore not atypical. That is why applying the one-fifth rule cannot usually be considered.
