What Germany's incoming 'active pension' means for older workers

The German government has come to an agreement on its ‘active pension’ (Aktivrente) plan, which is set to start from the beginning of next year.

The idea is that anyone of pension age who decides to carry on working can receive up to €2,000 in monthly income tax free, on top of their monthly pension payment.

The benefit is set to start from January 1st, 2026. 

According to the government, the project is intended to incentivise pensioners to remain longer in employment, thereby reducing the country’s shortage of skilled workers.

Who gets the benefit?

According to a press release by the Ministry of Finance, the active pension applies to all employees who are subject to social security contributions. 

The tax exemption is limited to persons who have exceeded the standard retirement age – currently set at 67 years old.

Self-employed or freelance workers and civil servants are excluded. According to a report by ZDF Heute, tradespeople and freelancers in the agriculture and forestry sector are also excluded.

For all qualified workers, the benefit is to be granted regardless of whether the taxpayer receives a pension or postpones it. 

The government expects that around 168,000 people will make use of the benefit. 

How much will it cost?

The active pension is expected to cost the state €890 million per year in lost taxes, between 2026 and 2030.

The federal and state governments will each bear the full annual effect of €378 million, and the municipalities will be responsible for €134 million. 

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Useful advantage or ‘deceptive package’ 

The idea for an active pension had been floated by members of the conservative Christian Democrat Union (CDU) since the time of the previous traffic light government, and it became part of the party’s campaign platform in the Bundestag election at the beginning of this year.

It’s now backed by members of the Social Democrats (SPD), the junior coalition partners in the black-red government.

Federal Finance Minister Lars Klingbeil (SPD) said: "We are providing further impetus for economic growth in Germany." 

He added, "This strengthens the labour market, it strengthens the economy and this is a real plus for all those who want to remain professionally active."

However, trade unions and social researchers have warned that the active pension isn’t designed to address bigger problems in the pension system.

The German Institute for Economic Research (DIW) has argued that the reform really helps those who are already financially secure, whereas those with small pensions who can no longer work will not benefit.

According to reporting by Tagesschau, the German Trade Union Confederation (DGB) has called the active pension a "deceptive package" that pushes older people to work longer.

Of course, for anyone who prefers to continue working, the active pension will be a nice bonus.

Ruth Maria Schueler, a specialist in senior employment at the IW Institute, previously told AFP that "most people who return to work after retirement don't do so primarily for financial reasons".

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Larger pension reform

The active pension is to be part of a pension package - including the proposal to freeze the pension level at 48 percent. 

The bill is to be introduced into the Bundestag on Thursday.

The parliamentary manager of the SPD, Dirk Wiese, was optimistic that the pension package can come into force at the beginning of 2026 despite resistance from young Union MPs.