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Germany’s government has approved a new law aimed at easing the country’s growing labor shortages by encouraging retirees to stay in the workforce longer, according to The Independent. Starting in 2026, retirees who continue working beyond the official retirement age of 67 will be allowed to earn up to 2,000 euros per month tax-free.
The measure is expected to cost the government about 890 million euros annually in lost tax revenue from 2026 to 2030 but is seen as a necessary step to support economic growth amid a shrinking labor pool.Â
Finance Minister Lars Klingbeil highlighted the importance of experienced workers, saying businesses urgently need skilled professionals to sustain growth.
Germany faces significant demographic challenges, with projections showing a decline of 6.3 million workers between 2010 and 2030, which risks lowering productivity per capita. Economy Minister Katherina Reiche stressed the urgency, noting that the working-age population is shrinking by roughly 400,000 each year, intensifying the shortage of qualified workers.
The new policy applies to employees subject to compulsory social insurance who have passed the retirement age, and contributions to the social insurance system will continue, helping to maintain its funding.
Germany’s approach is part of the European trend where pension reforms are increasingly used to address workforce shortages and ease pressures on pension systems.Â
However, such reforms remain politically sensitive. For example, France recently postponed a controversial pension reform until after the 2027 presidential election following political pushback.
Germany’s new law aims to balance economic necessity with social welfare, encouraging older workers to remain active without facing heavy tax burdens, as the country confronts the realities of an aging population and labor market constraints.
