Faced with a pension system crisis in Germany, Chancellor Friedrich Merz has proposed a solution: encouraging retirees to return to work by offering a tax exemption of up to €2,000 per month. A “solution” that is sparking debate in a country where the retirement age is already set at 66, soon to rise to 67.
- Germany: Chancellor Friedrich Merz proposes a tax exemption of up to €2,000/month to encourage retirees to return to work.
- The German pension system costs €408 billion in 2024, up 60% since 2010, and is no longer financed solely by contributions
- The statutory retirement age will rise to 67 by 2031, with debates around a possible extension to 70.
- More than 1.1 million seniors already work beyond the age of 67, often to maintain both a social and financial role.
- The success of this reform will depend on adapting jobs and fighting age-related discrimination in the labor market.
German pension system: The “end of the welfare state”
The cost of pensions in Germany reached €408 billion in 2024, a 60% increase compared to 2010. Social contributions are no longer sufficient to cover pensions, and retirees now make up a quarter of the German population. This situation is straining the pension model, long supported by the country’s prosperity and industrial competitiveness.
“The welfare state as we know it today is no longer financially sustainable,” declared Friedrich Merz at the end of August. The Chancellor is paving the way for an “autumn of reforms” to address the economic crisis facing the country, making pensions one of his government’s top priorities.
Between tax exemptions and raising the retirement age
To encourage seniors to return to work, the German government is considering granting tax exemptions of up to €2,000 per month for the incomes of retirees who work until the statutory retirement age, which will rise to 67 by 2031, compared to 66 today.
In 2024, more than 1.1 million seniors were working beyond the age of 67, in a country of 46 million people. The motivations for resuming activity often go beyond financial reasons, with a search for purpose and social participation.
An independent commission is expected to propose structural reforms by 2027 to stabilize the pension system. Economy Minister Katherina Reiche has also raised the possibility of pushing the retirement age to 70—an option that has ignited heated debates among trade unions, political parties, and experts.
Employment for seniors: Jobs that need adapting
The return of seniors to the labor market also depends on adapting jobs to the abilities of older workers. Many seniors hold skilled positions and demonstrate punctuality, dedication, and low absenteeism. The challenge remains for companies, some of which continue to discriminate against this age group despite their recognized experience and productivity.
Germany: A pension system in transition
The proposed tax incentive for retirees is a pragmatic measure to ease pressure on the pension system while sustaining economic activity. Its success, however, will depend on seniors’ willingness to keep working and on companies’ ability to make efforts in terms of inclusion and workplace adaptation.
With an aging population and rising pension costs, Germany is betting on the experience and motivation of its elders to secure the viability of its social model.
Published by the Editorial Staff on