Anyone who voluntarily works part-time in retirement will be able to earn up to €2,000 tax-free in the future. The German cabinet on Wednesday approved draft legislation introducing an “Active Pension” scheme that would allow retirees who choose to continue working to earn up to €2,000 per month tax-free. The measure is intended to address challenges in pension financing and the shortage of skilled workers. The draft law will now be discussed in the Bundestag and is planned to take effect at the start of next year.
Under the proposal, people who have reached retirement age and are employed could earn up to €2,000 per month, or €24,000 per year, from non-self-employed work without paying income tax. However, social security contributions would still apply. Employees and employers must continue paying into health and long-term care insurance, while employers would also contribute to pension and unemployment insurance.
“We are creating new incentives for economic growth in Germany. Our economy needs older, experienced workers and specialists,” said Finance Minister Lars Klingbeil (SPD). “They can share their knowledge and continue contributing. The Active Pension strengthens the labor market, boosts the economy, and benefits everyone who wants to stay professionally active.”
The Active Pension will be excluded from the so-called progression clause, which would otherwise raise the overall tax rate due to higher total income. The scheme will not apply to self-employed individuals, farmers, or civil servants. Participation is voluntary.
According to the finance ministry, the continued payment of social contributions will also strengthen social security funds. “With the existing obligation to pay social insurance contributions, the social systems also benefit from this bonus,” the ministry said. “In the end, everyone benefits, the social systems are relieved, the labor shortage is reduced, and Germany’s economic position is strengthened.”
The government expects strong interest in the scheme. The finance ministry estimates around 168,000 participants per year, roughly one in four eligible retirees. The annual tax revenue loss due to the exemption is expected to reach €890 million.
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