The state of the EU where the pensioners who choose to continue their work will be able to earn up to 2,000 euros per month without being taxed

The measure has the role of mitigating the impact of aging the employees, in the context in which the economy is facing a labor shortage, and is part of a package of reforms targeted by the Government of Germany, writes Financial Times.

The Germans who choose to work after the retirement age will be able to benefit from tax exemptions for revenues up to 2,000 euros per month. The so-called active pension plan, an electoral promise of Chancellor Friedrich Merz, is to be approved on Wednesday by the ruling coalition and should enter into force from January 1.

Merz's coalition is trying to mitigate the impact of aging of Germany, in the context in which the economy is facing a qualified labor shortage after three years of stagnation. The initiative is one of the structural changes made by the coalition, as part of a so-called “autumn of reforms”.

“The labor market in Germany is facing structural challenges as a result of demographic changes. The Baby Boomers generation will gradually retire in the coming years, while fewer young people enter the labor market. This leads to a shortage of skilled workers,” the bill shows.

The government estimates that the measure will cost 890 million euros per year from the moment of entry into force, according to the bill consulted by the Financial Times.

Greece took a similar measure

In Germany, as in most European countries, the continuation of professional activity after retirement is allowed, but Berlin wants to make it more attractive through tax exemptions.

Among the countries that encourage work after retirement are Greece, who also has some success.

Since Athens has allowed the pensioners who work to keep their pensions and submit their additional income to a low tax rate of 10%, the number of working pensioners increased from 35,000 in 2023 to over 250,000 in September, according to the Ministry of Labor.

Germany's problems

Germany is facing some of the largest demographic challenges in Europe, with 4.8 million workers – 9% of the workforce – to retire by 2035, which puts pressure on the social and economy.

In addition to the decreasing workforce, Germany has the shortest average working program among all OECD economies, according to the organization based in Paris.

At the same time, the share of part -time workers doubled, reaching 30% of the workforce from the early 1990s, mainly due to women.

The purposes of the reform

The fiscal incentive will also contribute to “longer keeping the experience and knowledge within the companies” and will lead to a “general employment rate increase, contributing to the economic growth and to the increase of government revenues”, the draft law shows.

Employees and employers will pay social contributions for these salaries, providing an impulse to the tense finances of the health and pension systems in Germany.

The estimation of the annual fiscal income deficit of 890 million euros seems to be at the lower limit of economists forecasts, which means that the Government does not anticipate a large number of beneficiaries.

The IW Institute estimates that the annual costs of the measure could be closer to 1.4 billion euros, considering that about 340,000 workers could benefit from this fiscal incentive.