Germany’s government has approved a new draft law designed to tackle the nation’s growing labour shortages by encouraging individuals to continue working beyond retirement.
The proposed legislation, agreed upon by the cabinet on Wednesday, will allow retirees to earn up to 2,000 euros (£1,700) per month tax-free.
Set to come into effect at the beginning of 2026, the initiative is projected to cost the state approximately 890 million euros (£760 million) annually in lost tax revenues between 2026 and 2030, according to a Reuters report.
Finance Minister Lars Klingbeil emphasised the economic rationale behind the move, stating: “We are setting further incentives for economic growth in Germany.
“For this, business particularly needs older and experienced workers and skilled professionals.”
A measure to fight demographic changes
An interior ministry report indicates that Germany’s working population is expected to shrink by 6.3 million people from 2010 to 2030, a trend that will inevitably depress gross domestic product per person due to a reduced worker-to-retiree ratio.
“Our companies are already desperately looking for skilled workers and demographic trends will further worsen the shortage,” Economy Minister Katherina Reiche said, adding that the number of people of working age is decreasing by around 400,000 per year.
Eligible are employees who are subject to compulsory social insurance and who have passed the standard retirement age of 67.
With the existing obligation to pay social insurance contributions remaining in place, the social system will also benefit from the bonus, the finance ministry said.
Europe turns to pension reforms to address labour shortages
German measures to encourage workers to retire later come as governments across Europe turn to pension reforms to address worker shortages and ease the burden on their pension systems.
Nevertheless, it is a politically divisive topic that can have a high political cost for governments, as seen in France.
French Prime Minister Sebastien Lecornu on Tuesday suspended a landmark 2023 pension reform until after the 2027 presidential election, bowing to pressure from leftist lawmakers who had demanded such a move to ensure his political survival.
