DIW Proposes “Boomer Soli” to Stabilize pension System Amidst Demographic Shifts

Berlin, Germany – July 15, 2025, 9:28 p.m. – In response to the mounting financial pressures on Germany’s pay-as-you-go pension system, the German Institute for Economic research (DIW) has put forth a bold proposal: a special levy dubbed the “Boomer Soli.” This targeted contribution,designed to shore up pension funds as the large baby boomer generation retires,aims to stabilize pension levels without imposing broader economic strain.

The DIW’s economists highlight that the influx of retirees from the post-war baby boom era, born in the 1950s and 1960s, is placing a significant burden on the current pension framework. Their analysis, detailed in their weekly report, suggests that immediate action is necessary, outlining two primary reform measures that would facilitate a redistribution of financial resources among older generations.

The first, and more immediate, proposal is the “Boomer Soli.” This special levy would be applied to all income earned by individuals above a certain threshold. Crucially, the DIW suggests that the revenue generated from this levy should not enter the general federal budget but instead be channeled into a dedicated fund specifically for the redistribution of income in old age.This fund would be strictly earmarked for its intended purpose. The DIW specifically advocates for this levy to primarily burden the top fifth of income earners.

The second reform suggestion involves the redistribution of pension entitlements themselves. This would entail adjusting pension levels, perhaps by increasing lower pensions and reducing higher ones. However, the institute acknowledges that this approach would likely be a longer-term strategy.

“Politics will have to implement brave and far-reaching reforms in the coming years,” the DIW experts emphasize. They contend that guaranteeing the security function of the pension system, thereby ensuring a stable standard of living in old age while simultaneously managing financing, presents considerable financial challenges. A special levy on all age-related income, they argue, could serve as a vital component in addressing these challenges.

Political discussions are already underway, with the Union and the SPD aiming to secure the pension level in the immediate future. Following these discussions, a new pension commission is expected to convene to purposeful on the long-term sustainability of the pension system, a commitment previously agreed upon in their coalition agreement.

How might policies like “Baby Bonds” impact long-term wealth accumulation and economic mobility across different racial groups?

Generational Equity: A Proposal for Addressing Ancient Disadvantage

Understanding the Roots of Generational Inequity

Generational equity isn’t simply about fairness between age groups; it’s about rectifying systemic disadvantages passed down through generations. These disadvantages often stem from historical injustices – discriminatory policies and practices impacting wealth accumulation, access to education, healthcare, and opportunities. Key areas contributing to this imbalance include:

Racial Wealth Gap: Centuries of slavery, Jim Crow laws, and ongoing discrimination in housing and lending have created a notable wealth disparity between racial groups. This impacts not only current generations but also their descendants.

Gender Inequality: Historical and ongoing gender-based discrimination in the workplace, limited access to capital for female entrepreneurs, and the disproportionate burden of unpaid care work contribute to a wealth gap between men and women.

Inheritance & Accumulated Wealth: Existing wealth is frequently enough passed down through generations, perpetuating advantages for those already privileged and disadvantages for those starting from a less advantageous position. This creates a cycle of wealth inequality.

Educational Disparities: Unequal access to quality education, often linked to socioeconomic status and geographic location, limits opportunities for upward mobility across generations.

Policy Proposals for fostering Generational Equity

Addressing generational inequity requires a multi-faceted approach. Here are several policy proposals, categorized for clarity:

1. Targeted Wealth Redistribution & Economic Empowerment

Baby Bonds: Establishing government-funded savings accounts for every child at birth,with larger contributions for children from lower-income families. These funds could be used for wealth-building assets like education, homeownership, or starting a buisness. This directly addresses asset building and economic mobility.

Reparations: Acknowledging and addressing the historical harms of slavery and systemic racism through direct financial payments or targeted investments in affected communities. The debate around reparations for slavery continues, but the principle of restorative justice is central.

Expanded Earned Income Tax credit (EITC): Increasing the EITC, particularly for childless workers, can provide a significant boost to low-income individuals and families, fostering financial stability.

Universal Basic Income (UBI) Pilots: Testing the feasibility and impact of providing a regular, unconditional cash payment to all citizens. UBI could serve as a safety net and empower individuals to pursue education, training, or entrepreneurship.

2. Investing in human Capital & Prospect

Universal Preschool: Providing access to high-quality preschool for all children, nonetheless of income, can considerably improve cognitive and social-emotional advancement, setting them up for success in school and beyond.

Debt Cancellation: Targeted student loan debt cancellation, particularly for borrowers who attended predatory institutions or are struggling with repayment, can alleviate financial burdens and unlock opportunities for wealth building. This is a key component of student debt relief.

Affordable Housing Initiatives: Expanding access to affordable housing through increased funding for housing vouchers, construction of new affordable units, and policies that prevent discriminatory housing practices. Housing affordability is crucial for generational wealth creation.

Job Training & Apprenticeship Programs: Investing in programs that provide individuals with the skills and training needed to succeed in high-demand industries. Focus on workforce development and skills gap solutions.

3. Reforming Tax Policies to Promote Equity

Increased Estate Tax: strengthening the estate tax, which taxes the transfer of wealth at death, can help to reduce wealth concentration and generate revenue for public investments.

Capital Gains Tax Reform: Taxing capital gains at the same rate as ordinary income would reduce the tax advantages enjoyed by wealthy investors.

Progressive Taxation: Implementing a more progressive income tax system, where higher earners pay a larger percentage of their income in taxes, can generate revenue for social programs and reduce income inequality.

Land Value Tax (LVT): taxing the unimproved value of land, rather than buildings or improvements, can discourage land speculation and encourage more efficient land use.

Case Study: Germany’s “Lastenausgleich” (Equalization of Burdens)

Following World War II,germany implemented the “Lastenausgleich,” a program designed to redistribute wealth and address the economic disparities created by the war. this involved levying a tax on large fortunes and using the proceeds to provide financial assistance to those who had suffered losses during the war. While not a perfect analogy, it demonstrates a historical example of a nation attempting to address significant wealth imbalances through policy intervention.

Benefits of Prioritizing Generational Equity

Stronger Economic Growth: Reducing inequality can boost economic growth by increasing consumer demand and expanding the pool of skilled workers.

Increased Social Cohesion: Addressing historical injustices and promoting fairness can foster greater trust and cooperation within society.

Improved Health Outcomes: reducing poverty and improving access to healthcare can lead to better health outcomes for all.

Enhanced Democratic Participation: When individuals feel that the system is fair,they are more likely to participate in civic