Tuesday, 22 July 2025
A special levy on all retirement income could help stabilise Germany’s pension system without directly burdening younger generations, according to a study by the German Institute for Economic Research (DIW Berlin). The proposed “boomer solidarity levy” would target higher-income pensioners, with the goal of supporting low-income retirees and reducing poverty among the elderly.
Unlike rising pension contributions or tax subsidies, which would impact younger workers, the Boomer Soli would redistribute income exclusively within the older population. Peter Haan, head of the State Department at DIW Berlin, noted that the pension system has failed to build sufficient financial reserves in recent years, and the retirement of the baby boomer generation will place significant additional strain on pension finances. DIW tax expert Stefan Bach said it would be unfair to shift the costs of demographic change onto younger people and argued that a solidarity levy could help ensure fairness by modestly affecting well-off pensioners.
The study estimates that the poverty risk rate among the elderly could fall from around 18 percent to just under 14 percent if such a measure were implemented. Under the proposal, a ten percent levy would be applied to retirement income above an allowance of approximately €1,000 per month. This would impose a moderate burden on the top 20 percent of pensioner households, who could see their net equivalent income reduced by three to four percent, depending on whether capital income is included. Meanwhile, pensioners in the lowest fifth of the income distribution would benefit from an increase in statutory pension income, resulting in a rise in their incomes of around ten to eleven percent.
The Boomer Soli would have a broad assessment base, applying not only to statutory pensions but also to private and occupational pensions, civil servant pensions, and potentially income from assets. This approach recognises that wealthier households often rely less on statutory pensions and more on other sources of income, such as company pensions or investment returns.
DIW pension expert Maximilian Blesch explained that redistributing entitlements solely within the statutory pension system would be less effective, as pension points are not always reliable indicators of a household’s overall income. He argued that limiting redistribution to the statutory system would therefore not accurately target higher-income retirees.
However, the study’s authors also caution that implementing a Boomer Soli could have side effects. Even though current earned income would not be directly taxed, long-term effects might discourage individuals from working or saving for retirement if they anticipate higher taxes on retirement income in the future. Ultimately, the choice of how to balance financial responsibilities between older and younger generations will depend on political priorities. Nonetheless, DIW Berlin considers the Boomer Soli a preferable option compared to relying solely on redistribution within the statutory pension scheme.
