A proposal for a special levy on higher retirement incomes, dubbed a “Boomer-Soli” has been put forward by experts at the German Institute for Economic Research (DIW) as a potential solution for stabilizing the pension system. The proposal, detailed in the institute’s latest weekly report, suggests redistributing a portion of income from pensioners with higher earnings to those with lower incomes.
Two variations of the levy have been considered. The first would apply only to retirement income derived from defined pension plans, while the second would also incorporate capital income. Under both scenarios, retirement income exceeding a monthly threshold of €902 or €1,048 would be subject to a proportional levy of ten percent. Income from employment would not be affected.
However, the proposal has faced criticism. The Institute of the German Economy (IW) in Cologne argues that the levy wouldn’t guarantee that every low-income beneficiary would be lifted above the poverty line or prevented from needing social assistance. A more significant concern, according to the IW, is that it fails to account for the wealth accumulated during a person’s lifetime. German households aged over 65 hold a significant average net household wealth of over €172,500.
The IW warns that the levy could create unintended consequences, potentially disincentivizing certain retirement strategies, such as opting for a lump-sum payout from occupational pension schemes instead of a monthly pension to lower reported income and subsequently, the levied amount.
“The proposed Boomer-Soli may appear appealing at first glance, but failing to account for wealth in pensioner households misses the mark” stated IW economist Jochen Pimpertz. He also emphasized that existing social welfare programs already fulfill a similar role and highlighted the importance of the statutory pension system, asserting that it performs better than its reputation suggests, particularly when individuals contribute for longer periods.
The proposal has also drawn criticism from the Federal Government’s Advocate for Small and Medium-Sized Enterprises, Gitta Connemann (CDU). She stated that abruptly imposing such a levy on individuals who have meticulously planned their retirement portfolios would undermine financial security and trust. Connemann argued for the need for planning certainty, particularly within the realm of retirement planning and cautioned against hastily proposed measures that could negatively impact Germany’s economic competitiveness.
