Whether someone is self-employed or an employee, a payment is due. A new tax from 2023 affects many workers, with implications for Social Security and how salaries are calculated. The Intergenerational Equality Mechanism MEI is a measure that will influence more than 20 million citizens, starting January 1, 2023.
What is MEI? New tax coming in 2023
The Intergenerational Equality Mechanism replaces the former Sustainability Factor. It is positioned as a contingent and temporary measure aimed at restoring and supporting a pensions fund through balanced contributions across generations. In short, MEI seeks to recharge the pension system by sharing the burden of funding between current workers and future retirees.
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With aging populations rising, ongoing unemployment, waves of retirement among baby boomers, and a pension reserve that is stretched thin, the government is navigating difficult times for retirement financing. The MEI is part of a broader effort to stabilize pensions amid demographic and economic pressures.
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Beyond other reform measures, a MEI publication in the official bulletin underscores that this mechanism acts on income (contributions) rather than benefits (expenses). Unlike the repealed Sustainability Factor, which tied benefits to life expectancy, the Intergenerational Equality Mechanism activates only when necessary and remains temporary in nature.
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What will the new tax of the Intergenerational Equity Mechanism look like
It will not affect MEI pensions in January 2023, so those amounts are not reduced, unlike the old Sustainability Factor. The MEI introduces a new tax shared by all workers regardless of income. The percentage of salary allocated to this tax will be uniform across the board, creating a predictable deduction for workers.
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This new tax is implemented as a separate contribution concept. People registered with SGK will see a payroll deduction roughly 0.6 percent. This extra charge affects both the self-employment quota and the payroll of traditional workers, applying across the board and influencing take-home pay.
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The government aims to gather sufficient funds to cover future pension costs. The plan targets approximately 22.0 billion euros in additional revenue by 2032, with the MEI forecast to wind down after that period.
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How will the new tax affect you
From January 1, 2023, a 0.6 percent deduction from workers will fund the MEI. Employers contribute 0.5 percent of this amount, while workers cover 0.1 percent. For self-employed unions, the typical estimated impact is around 5 euros more per month on average in total contributions.
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To illustrate the impact, consider a worker with a gross monthly salary of 2,000 euros. The MEI would amount to about 12 euros per month, with roughly 10 euros paid by the employer and 2 euros by the employee, highlighting how the new tax translates into real take-home changes.