Following a model similar to reforms implemented in Greece, Germany’s federal government is drafting legislation to grant retirees who continue working after reaching pension age a €2,000 monthly tax-free income allowance, according to a report by the Financial Times.
The proposal, a campaign promise by Chancellor Friedrich Merz, seeks to address one of Germany’s most pressing economic challenges — a shortage of skilled labor across key industries. The initiative would provide financial incentives for older professionals to remain economically active while easing pressure on a workforce constrained by demographic decline.
The measure is expected to take effect in January and could carry an estimated fiscal cost of €890 million per year. Despite the expense, German policymakers view the plan as a long-term investment in productivity and labor market resilience.
A policy inspired by Greece’s pension reforms
Germany’s proposed approach appears to take a cue from Greece, which has introduced similar incentives over the past few years with striking results.
According to Financial Times data, the number of registered working pensioners in Greece has surged from about 35,000 in 2023 to more than 250,000 today. The shift follows a series of reforms that transformed post-retirement employment from a punitive to an encouraging system.
Until recently, Greek retirees who returned to work faced severe financial penalties: they automatically lost 30% of their pension—and under an earlier version of the law, the deduction reached 60%.
That system was overhauled two years ago. Under the new framework, retirees retain their full pension but contribute 10% of their salary to Greece’s main social insurance fund, EFKA (National Social Security Entity). This contribution is treated as a solidarity levy that supports the pension system, while also allowing retirees to extend their insurance record and increase future pension benefits.
Bringing work out of the shadows
Greece’s reform has had another major outcome: it reduced undeclared work among older employees. In the past, many retirees who wished to stay active in the labor market did so informally, avoiding official reporting to escape large pension cuts.
By introducing a fairer contribution model and removing harsh penalties, Athens effectively brought transparency to a previously gray sector of the economy. Employers now have incentives to register retirees legally, while pensioners benefit from formal employment rights, health coverage, and the ability to grow their pensions.
The success of this policy has caught the attention of other European governments, particularly those facing aging populations and shrinking labor forces — challenges that mirror Germany’s demographic trajectory.
Digital reforms create additional parallels
The similarities between German and Greek reforms extend beyond taxation and pensions. The Merz administration has placed digital transformation at the heart of its governance agenda, creating a dedicated Ministry for Digital Affairs to accelerate modernization of the public sector.
This mirrors Greece’s digital overhaul of recent years, which introduced systems such as the digital work card — an electronic tool that records working hours in real time — and tax exemptions on overtime pay, both designed to improve transparency and labor flexibility.
Germany’s coalition agreement similarly envisions electronic time tracking and reduced taxation on extra work, signaling a broader convergence in European labor policy priorities.
Europe’s aging workforce drives reform momentum
Across Europe, governments are grappling with the same question: how to keep older workers active while ensuring fairness and sustainability in pension systems. Both Greece and Germany illustrate an emerging policy trend — rewarding participation rather than penalizing it.
By combining tax relief, digital oversight, and flexible pension rules, these reforms aim to make post-retirement employment a legitimate and productive part of the economy, rather than an exception.
For Germany, adopting a model inspired by Greece could mark an important step toward revitalizing its workforce, maintaining competitiveness, and setting a precedent for others across the continent.
