As Europe’s population “ages”, giving the continent a major demographic issue, the question of how to accommodate a large group of people no longer in employment looms large.  This month, German Chancellor Angela Merkel has taken steps to address this.

Merkel’s Christian Democrat party is seeking extra sources of funding to pay for soaring pensions and bills for social care, and they have drafted proposals requiring all those over the age of 25 to pay a proportion of their income towards this.

The proposals haven’t yet set a cost on the “age tax” but discussions have mentioned a possible figure of one per cent of income.

A slump in Germany’s population means that as more and more ageing Germans retire there are less and less young workers to replace them as taxpayers to fund generous welfare and pension arrangements.  Estimates from Germany’s federal employment agency, predict that the workforce will be reduced by seven million people by 2025.  Leading figures are already looking to a time after 2030 when this number will be significantly higher.  Unlike the UK, German’s working population hasn’t been significantly boosted by immigration over the past decade.

The proposals promise to be a hot topic in next year’s national elections.  We look forward to seeing where the debate will lead and welcome the views of our clients on this complex subject.

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