Germany greenlights €2,000 tax-free earnings for pensioners

Germany will introduce an “active pension” from 1 January 2026 that lets people who choose to work past the statutory retirement age earn up to €2,000 per month tax-free.

Labour Minister Bärbel Bas framed the Aktivrente as a straightforward incentive intended to keep experienced workers in the labour market.

Asked about the centre-right Union’s proposal for a tax-free top-up, Bas said “anyone who voluntarily wants to work longer needs attractive conditions”.

She added that the government would lift the ban on prior employment, which had prevented retirees from simply returning to their former places of work.

“It is counterproductive that employees who wanted to continue working after reaching retirement age were not allowed to return easily to their old employer.”

The decision comes after a tense coalition committee debate led by Chancellor Friedrich Merz and attended by Finance Minister Lars Klingbeil, Labour Minister Bas and Bavaria’s Minister-President Markus Söder.

The pension reform was agreed alongside changes to Bürgergeld, Germany’s basic income support for work-capable adults struggling with living costs.

Tightening the scheme is meant to address labour shortages and voter concerns about fairness by pushing people to return to work.

Critics warn the shift could deepen hardship for vulnerable households and mark a return to Germany’s former system, with benefit reductions potentially undermining a stable return to employment.

Germany’s tax-free €2,000 monthly allowance is unusually explicit by EU standards.

Several member states allow or encourage work beyond retirement age, but typically via lower income-tax rates for seniors, such as Sweden’s enhanced earned-income allowance for those over 66, or bonus credits for deferred pensions like Denmark’s seniorpræmie.

In most of Europe, pension deferral bonuses are the norm, and pensioners basically continue under their previous salaries and normal taxation rates.

For sectors wrestling with vacancies — like engineering, transport, healthcare, and public administration — the Aktivrente promises a path to retain experts and veterans, thanks to the scrapping of the prior-employment barrier and a tax-free allowance that makes reduced-hour contracts more attractive.

For workers at or beyond retirement age, they can stay on part-time, keep more of each euro up to the €2,000 monthly ceiling, and — depending on the final tally — combine this with a pension already in payment.

However, key implementation questions remain, such as how the tax-free amount interacts with solidarity surcharges or municipal taxes, and whether the allowance applies per job or per person across multiple contracts. It is also unclear how pension and health insurance payments will be aligned, or exactly what limits will apply to the lifting of the prior-employment ban.