Boomers should be hit with a 10 per cent tax on their pension savings to address economic inequality "for future generations", according to a German think tank.
Economists in Germany are considering a novel approach to pension sustainability through a proposed "boomer solidarity levy" that would tax wealthier retirees to support those with lower incomes.
The German Institute for Economic Research (DIW Berlin) suggests this levy could stabilise the country's pension system without placing additional burdens on younger workers.
In the UK, analysts have suggested various changes to the retirement system including means testing of the state pension, axing the triple lock and raising the benefit's eligibility age threshold.
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|Economists are calling for tax raids on pensioners to 'pay for future generations'
These have been suggested to address Britain's ballooning welfare bill and ensure the state pension remains a viable payment for future generations.
The German proposal would apply a ten per cent levy to retirement income exceeding approximately €1,000 (£864) monthly.
If implemented, this would affect the wealthiest 20 per cent of pensioner households, reducing their net equivalent income by three to four per cent.
Notably, the levy would extend beyond statutory pensions to include private and occupational pensions, civil servant pensions and potentially investment income.
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GETTY | Britons are worried about their pension savings DIW Berlin estimates this measure could reduce elderly poverty rates from approximately 18 per cent to just under 14 per cent. The poorest fifth of pensioners would see their incomes rise by roughly ten to eleven per cent through increased statutory pension payments.
A recent Office for Budget Responsibility (OBR) report found deemed the state pension triple lock is "large financial risk" for the UK and is projected to cost taxpayers £10billion more than initially estimated.
Furthermore, Office for National Statistics (ONS) data, Britain's pensioner population is expected to grow more than twice as fast as the working-age population up to 2073-74.
This is in line with shifts in the population age structure, alongside life expectancy at birth rising from around 89 to 94 years, and life expectancy at age 65 rising from 21 to 26 years.
Analyst have warned this places additional tax pressure on younger workers to keep the current system afloat. Danni Hewson, head of financial analysis at AJ Bell, said: "“When the Government’s forecaster uses terms like ‘vulnerable’ it’s hard not to hear alarm bells ringing, especially following the series of U-turns from the government on measures that had been intended to save money.
"The job of Chancellor is looking like a rather thankless one right now, with more public sector strikes over pay, warnings that the cost pencilled in for the state pension triple lock when it was introduced in 2012 needs rubbing out and replacing with a number three times higher, and debt forecast to top 270 per cent of GDP in less than 50 years."
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PA | A German think tank has suggested a 10 per cent levy on pensions
On Germany potential 10 per cent tax raid on pensions, Peter Haan, head of the State Department at DIW Berlin, noted that "the pension system has failed to build sufficient financial reserves in recent years, and the retirement of the baby boomer generation will place significant additional strain on pension finances".
Stefan Bach, DIW tax expert, argued "it would be unfair to shift the costs of demographic change onto younger people" and suggested the solidarity levy could ensure fairness by modestly affecting well-off pensioners.
However, DIW Berlin warns of potential side effects, including possible discouragement of work or retirement savings if individuals anticipate higher future taxes on retirement income.