A proposal for a special levy on higher retirement incomes, dubbed a “Boomer-Soli” has been put forward by experts at the German Institute for Economic Research (DIW) as a potential measure to stabilize the pension system. The proposal, detailed in the institute’s latest weekly report, suggests redistributing income from those with higher retirement earnings to lower-income pensioners.
Two variations of the proposal are being considered. The first focuses solely on retirement income derived from defined pension plans, while the second extends the levy to include capital income. Under both scenarios, retirement incomes exceeding a monthly threshold of either €902 or €1,048 would be subject to a proportional tax rate of ten percent. Income earned through employment would not be affected.
The proposal has drawn criticism from the Institute of German Economics (IW) in Cologne. The IW argues the levy wouldn’s guarantee that all low-income pensioners would be lifted above the poverty line or protected from needing social assistance. They further highlight that securing financial stability in retirement often relies on assets, which are considerable for many pensioners in Germany, who hold an average net household wealth of over €172,500.
The IW cautions that the levy could create unintended consequences, potentially incentivizing individuals to opt for lump-sum payouts from company pension schemes rather than receiving monthly payments, thus artificially reducing their reported retirement income and minimizing the tax owed.
“The proposed Boomer-Soli may appear appealing at first glance, but it misses the mark by failing to account for assets held by pensioners” stated IW economist Jochen Pimpertz. He added that existing state-funded social assistance programs already address this need and emphasized the importance of maintaining incentives for longer contributions to the statutory pension system, particularly as the aging “Boomer” generation transitions out of the workforce.
The government’s Commissioner for Small and Medium-Sized Enterprises, Gitta Connemann (CDU), also voiced concerns, noting the potential disruption to carefully planned retirement strategies. She emphasized the need for planning certainty and trust in retirement provisions, rather than sudden policy shifts. “Improvised proposals that suddenly take ten percent from someone who has calculated their portfolio are disastrous and damaging to our economic location” Connemann stated in an interview with RTL and ntv.