The federal government plans to introduce a tax incentive for working in retirement with the "Active Pension" from January 2026. Up to 2,000 euros of monthly wages are to remain tax-free. While this is good news for many employees, it raises skepticism among experts regarding the practical implementation.
Constitutional Concerns Regarding Implementation
Of particular concern is the restriction of the beneficiary group. The tax exemption applies exclusively to employees, while the self-employed, freelancers, and retired civil servants are left empty-handed. This differentiation is difficult to justify from a tax system perspective.
The general principle of equality under the German Basic Law requires that essentially equal cases be treated equally. That an employed engineer may earn tax-free additional income in retirement while a freelance engineer may not is unlikely to be legally tenable. It is expected that the fiscal courts will have to examine this unequal treatment promptly.
Relief for Pensioners with Additional Income
Regardless of the legal criticism, the relief for pensioners who rely on additional income is to be welcomed. It mitigates the problem of the high burden of contributions when pension and earned income coincide.
Our Advice
Take advantage of the benefits the law offers, but keep an eye on legal developments. Get advice in advance to avoid tax disadvantages due to progression clauses or interactions with other types of income.
The most important facts about the Active Pension:
- Effective date: January 1, 2026
- Allowance: Up to 2,000 euros monthly tax-free
- Requirement: Reaching the standard retirement age (67 years)
- Applies to: Employees in social security-covered employment
- Excluded: Self-employed, freelancers, retired civil servants
- Social security contributions: Continue to apply