German cabinet agrees on law to incentivise post-retirement work

Germany's cabinet agreed a draft law on Wednesday to encourage work after retirement by allowing those who do so to earn up to 2,000 euros a month tax-free in an effort to combat labour shortages in Europe's biggest economy. The change is to take effect at the beginning of 2026 and is expected to cost the state 890 million euros ($1.03 billion) per year in lost tax revenues from 2026 to 2030, according to the draft law seen by Reuters last week.

Germany's cabinet agreed a draft law on Wednesday to encourage work after retirement by allowing those who do so to earn up to 2,000 euros a month tax-free in an effort to combat labour shortages in Europe's biggest economy.

The change is to take effect at the beginning of 2026 and is expected to cost the state 890 million euros ($1.03 billion) per year in lost tax revenues from 2026 to 2030, according to the draft law seen by Reuters last week. In 2030, Germany's working population will probably have decreased by 6.3 million people from 2010, according to an interior ministry demography report. This will push down gross domestic product (GDP) per person as there will be fewer workers for each retiree.

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 which 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. ($1 = 0.8634 euros)