German Government Pushes for Post-Retirement Work as Part of Economic Strategy

Germany’s ruling coalition is preparing a series of labor policy changes aimed at increasing workforce participation across age groups—especially among retirees. Under the new “active pension” initiative, individuals who continue working after reaching the statutory retirement age would be allowed to earn up to 2,000 euros per month tax-free starting January 1, 2026.

The announcement, made by CDU Secretary General Carsten Linnemann during a televised discussion, is part of a broader shift in the government’s employment strategy. The aim is to create financial incentives for older citizens to remain in or return to the labor force voluntarily. Officials stress that participation will not be mandatory but encouraged through tax benefits.

Linnemann stated that the country needs “more work output to maintain prosperity,” and projected that tens of thousands, potentially even six figures, could extend their working lives within four years of the plan’s implementation.

Economic Pressure Behind Labor Push

Germany is facing sluggish economic growth. Leading research institutions have forecast zero GDP growth for 2025, with current productivity levels falling behind countries like Poland and Denmark. Data indicates that individuals aged over 60 in Germany work on average 10–20 percent less than their counterparts in Scandinavian nations.

Economists and policymakers argue that encouraging post-retirement employment could help stabilize tax revenues and ease pressure on the pension system. According to Moritz Schularick, head of the Kiel Institute for the World Economy, if German workers matched Polish labor participation levels, the government could substantially increase its investments in infrastructure and services.

Union Opposition and Social Criticism

The proposal, however, has met strong opposition from labor representatives. Christiane Benner, chair of IG Metall, criticized the narrative that Germans lack willingness to work. She pointed to the fact that over one billion hours of overtime are logged annually, with half of them going unpaid.

Benner argued that many physically demanding jobs take a toll well before retirement age, making extended work unfeasible for a large part of the population. She also highlighted the ongoing issue of underemployment among women. Nearly half of working women in Germany are employed part-time, often due to limited childcare access, which remains a major barrier to full participation in the labor market.

Women Disproportionately Affected by Part-Time Employment

According to recent data, 68.4 percent of mothers in Germany work part-time, compared to just 8.4 percent of fathers. While the employment gap between genders has narrowed in recent years, structural factors like insufficient early childcare and the existing tax framework still discourage full-time employment for many women.

The “Ehegattensplitting” tax policy, which dates back to 1958, allows joint taxation of married couples and often penalizes the lower-earning spouse. Critics argue that this system disincentivizes employment, particularly for women in dual-income households. While the SPD supports reforming this model, Linnemann has proposed a “family splitting” alternative that would equalize the tax-free allowance between adults and children, aiming to provide better support for families.

Calls for Broader Labor Market Reform

Beyond retirees, Benner emphasized the urgency of addressing youth unemployment and the large number of under-35s without vocational qualifications. Around three million young people in Germany have no formal training, a situation that continues to limit career prospects and adds strain to the skilled labor pool.

Both sides of the debate acknowledge that increasing labor participation requires structural changes—not just incentives. Flexible work arrangements, improved childcare, education access, and a reformed tax system are all being considered as part of the long-term response to Germany’s labor shortage.

Working Time Reform and Tax Changes Under Discussion

In parallel with the active pension model, the government plans to move away from the traditional eight-hour workday. A new approach based on a weekly working time limit is being considered, allowing, for example, four ten-hour days instead of five eight-hour days. The reform aims to increase flexibility without extending the total number of hours worked.

In addition, Linnemann reiterated the party’s plan to make overtime pay tax-free and to implement a higher personal tax allowance for seniors who choose to work past the retirement threshold. While these changes are still being negotiated, they are part of a wider effort to stimulate economic growth through internal labor force expansion.

A Nation Divided on the Future of Work

Germany now finds itself in the middle of a national debate over who should work more and under what conditions. Proponents argue that a tax-free earning incentive for retirees is a pragmatic response to an aging population and stagnant growth. Critics counter that it risks overlooking those unable to work longer, while ignoring systemic barriers preventing others—especially women and the undertrained youth—from participating more fully.

As the policy is refined in the coming months, its effectiveness will likely depend on how well it balances economic demands with social fairness. The government insists that the focus is not on coercion but on rewarding effort. Whether that message will resonate with a workforce already stretched thin remains to be seen.