The Boomer Solidarity Surcharge: An Important Tool for Stabilizing Pensions Without Directly Burdening Younger Generations

Abstract

As the baby boomer generation enters retirement, the payas- you-go pension system in Germany is under an increasing amount of pressure. Relevant changes, in particular higher contribution rates or lower pension levels, are causing tension between generations: Either the financial burden on the younger generations is increased or the risk of insufficient pensions and old-age poverty for the elderly rises. This Weekly Report analyzes two different reform approaches that would result in redistribution within the older generations: A progressive devaluation of pension entitlements as proposed by the German Council of Economic Experts and the “boomer solidarity surcharge” suggested here, a special surcharge on all retirement income above a defined tax allowance. While redistribution within the pension insurance system would be a long-term process, the special surcharge could be implemented immediately. Both measures would improve the financial situation of low-income pensioner households without directly burdening the younger generations. If the special surcharge applies to all retirement and property income, a broad redistribution with only a moderate burden on higher income groups would be possible.