4 hours ago
4
Germans who continue in the labour market beyond retirement age will be able to earn up to €2,000 (£1,750) a month tax-free on top of their pension under a scheme aimed at boosting economic growth and labour force participation rates.
The “Aktivrente”, or active pension scheme, due to come into force in January, was promised on the campaign trail by the chancellor, Friedrich Merz, before he came into office five months ago.
The government, a coalition of Merz’s conservative Christian Democrats (CDU) and junior partners the Social Democrats (SPD), hopes the plan will incentivise post-retirement working.
A draft law is expected to be approved by the cabinet on Wednesday – after Merz won over his Social Democrat sceptics earlier this month – then debated in the Bundestag.
Merz has described the measure as an attempt to take the bull by the horns after three years of economic stagnation exacerbated by a lack of skilled labour, itself a consequence of a chronic demographic crisis. Fewer Germans are being born and increasing numbers are entering retirement. About 9% of the workforce – 4.8 million people – are due to retire in the next decade.
The effects are felt on a daily basis across multiple sectors of the economy, including construction, education and health.
The Aktivrente forms part of what Merz has called an “autumn of reforms” to bring radical structural reform to Europe’s largest economy.
According to the wording of the draft bill, the tax incentive is expected to help “keep experience and knowledge in companies for longer” and bring about an “overall increase in the employment rate” as well as “contributing to economic growth and higher government revenues”.
Both employees and employers will pay social security contributions on the extra moneys earned, which in turn should help to ease the strains on Germany’s health and pension systems, the finance ministry has said.
The active pension is to apply to everyone who has reached the statutory retirement age of 67 and wishes to continue working in a job that is subject to social security contributions. Civil servants, tradespeople, the self-employed and those employed in agricultural and forestry industries are excluded from the scheme, however, drawing criticism from the German Economic Institute (IW).
Ruth Maria Schüler, an IW pension expert, told the broadcaster BR24: “The question is how one justifies the fact that one type of income is tax-exempt while others are not?” Schüler added that it put some workers at an unfair advantage.
The government estimates that if about one quarter of those eligible took up the offer, the annual cost to the state in tax losses would be just under €900m, though experts have said a figure of €1.9bn is more accurate. Regardless, the government says the focus should be on the longer-term benefits of the scheme. It argues that extra economic growth and the increase in social security contributions could mean the scheme will more than pay for itself within three years.
The government has also been keen to promote the social benefits, saying that the Aktivrente could help to boost the standing of older people in society and provide a psychological uplift by encouraging those who enjoy working and are fit to continue beyond 67.
