Analysis suggests proposed incentives may not boost working hours in Germany.
Recent proposals by the German government to incentivize increased working hours, specifically through tax exemptions for “active pensions” (income earned after the statutory retirement age) and overtime pay, are unlikely to produce substantial effects, according to a leading economic advisor.
Martin Werding, a member of the German Council of Economic Experts, expressed skepticism in an interview with the “Rheinische Post”. He noted that a similar policy implemented in France yielded minimal results. Werding’s assessment suggests that those already inclined to work beyond the standard retirement age would primarily benefit from the tax exemptions up to €2,000 per month, rather than being motivated to significantly alter their work patterns.
Instead, Werding advocates for alternative strategies to extend working lives. He identifies further, gradual increases to the statutory retirement age, scheduled to begin in 2031, as a more reliable approach. He also emphasizes the crucial need for more accurate actuarial calculations regarding penalties applied to those who retire early, arguing that current deductions are insufficient to compensate for the extended duration of their pension payments. Furthermore, he suggests phasing out options for early retirement without penalty (the ability to retire at age 63).
The government’s plan aims to address concerns about potential labor shortages and encourage older individuals to remain in the workforce longer. However, the council’s analysis indicates that these objectives may be better achieved through more fundamental adjustments to the pension system.