Experts from the German Institute for Economic Research (DIW) are proposing the 'Boomer-Soli', a special levy on retirement income above a certain threshold, to help stabilize pension funding amid the increasing retirement of the baby boomer generation.

The 'Boomer-Soli' aims to redistribute wealth by requiring higher earners and affluent retirees to contribute a small portion of their income into a dedicated fund, which would be used to support lower-income retirees and improve pension security.

This proposal targets retirement incomes from state, occupational, and private pensions, as well as asset income, with a progressive tax structure, and includes exemptions for lower-income retirees, primarily affecting the top income quintile.

The revenue generated from the 'Boomer-Soli' would be allocated into a special fund, not the general federal budget, to ensure targeted redistribution of pension income.

Implementing this levy could potentially reduce old-age poverty in Germany from over 18% to nearly 14%, providing relief especially for low-income retiree households.

Retirement incomes exceeding 902 euros or 1,048 euros per month would face a 10% levy, while employment income would not be additionally taxed, making the system somewhat progressive.

Two models are proposed for calculating the levy: one based solely on pension plan incomes and another that also includes capital income.

In addition to the 'Boomer-Soli', DIW suggests a longer-term reform to redistribute pension entitlements by increasing lower pensions and decreasing higher ones, though this would take more time to implement.

Experts emphasize the need for bold reforms in the pension system to ensure its sustainability, maintain a decent standard of living for retirees, and address financing challenges.

The proposal comes as approximately 15 million baby boomers, born between 1950 and 1964, are entering retirement, putting significant strain on Germany's pay-as-you-go pension system.

Critics, including the Institute of the German Economy, argue that the 'Boomer-Soli' is an imprecise solution that neglects wealth considerations and could unfairly penalize those who have already contributed significantly.

The Federal Court of Auditors does not endorse the 'Boomer-Soli', recommending instead to strengthen revenue sources through eliminating ineffective tax benefits and fighting tax evasion.

While low-income retirees could see relief of up to 11%, wealthier households may face a tax increase of 3-4%, highlighting the proposal's targeted approach.