Germany announces “active retirement” tax break for working pensioners

Germany’s CDU-SPD coalition government has announced a new tax break for people who continue to work past retirement age. If the policy passes through the Bundestag, the new rules will apply from January 1, 2026.

“Aktiverente” may apply in Germany from January 1, 2026

The German government has announced that it wants to adopt the “Aktiverente” (active pension) policy. With the “active pension”, people who work past retirement age wouldn’t have to pay tax on the first 2.000 euros of their monthly income (or 24.000 euros of annual income). 

The policy must first be debated on the Bundestag floor and go to a vote. If the draft law passes, the new rules will apply from January 1, 2026.

“We want to make working in old age more attractive,” CDU general secretary Carsten Linnemann told Reuters.“We want the active pension to help combat the shortage of skilled workers.”

Germany is currently facing a record-high worker shortage across many sectors. According to a 2025 report by the German Institute for Economic Research (DIW), 4,7 million existing employees will leave the labour force between 2024 and 2028. 

The IW has also warned that the German economy cannot be sustained by the “growth potential of [its] existing population” and “needs a significant influx of labour for long-term growth” or risks being “significantly curtailed”. 

More tax benefits for overtime hours

Linnemann also announced that the coalition would introduce more tax benefits for hours worked overtime. Overtime pay will be tax-free so long as it does not exceed 25 percent of an employee’s base salary. The draft law outlines that tax benefits for overtime hours will only apply to contracted employees, not to freelancers. 

Additionally, part-time employees will be incentivised to increase their working hours with one-off, tax-free bonus payments of up to 4.500 euros.

Both employers' associations and trade unions have criticised the government’s draft law. Head of the German Employers’ Association (BDA) Steffen Kampeter told rnd the coalition was “simultaneously stepping on the gas and the brakes”, calling the incentives “ineffective and expensive for contributors and taxpayers”.

Anja Piel of the German Trade Union Confederation (DGB) told the broadcaster that the “rules would cost billions, but not solve the problem at hand”, and that people over retirement age don’t want to work because of their health, working conditions, or their employer doesn’t want to employ them any longer.