Update: This article has been revised, as of November, to reflect changes to the original proposal about who would receive the first early retirement pension payments for children.
With the planned introduction of an early start pension (Frühstart-Rente), the federal government aims to encourage school children in Germany to think about saving up for retirement from an early age.
The plan, which was included in the black-red coalition agreement between the conservative Union and the centre-left Social Democrat parties, is that every child attending school in Germany will get €10 per month paid into an individual pension portfolio in their name.
Payments would be made by the German state, and are due to start from the beginning of 2026.
How would early start pensions work?
The basic idea is that every schoolchild in Germany, from the age of six, gets a retirement provision account and that the state pays €10 into it monthly.
The aim is to provide children with access to the capital market at an early stage, and encourage them to think about building up assets in the long term.
According to the latest plans, the children’s pension payments – originally intended for all children and young people in Germany between the ages of 6 and 18 – will now be introduced gradually.
While the coalition agreement had proposed that all 6- to 18-year-olds would receive €10 per month into an individual, private stock portfolio starting in 2026, the program will initially be limited to only six-year-olds due to budget constraints.
Each subsequent year, additional age cohorts will be included, with the long-term goal of eventually providing the subsidy to all 6- to 18-year-olds as originally promised.
The Ministry of Finance has allocated €50 million for the first year, which is sufficient to cover only the youngest age group.
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From the age of 18, government payments would stop but children or parents and guardians could voluntarily make additional contributions to the account.
According to the conservative Union parties, which brought the proposal, the deposit should be "protected from state access" and should only be paid out when an account holder reaches the standard retirement age.
How much money are we talking about?
In twelve years, the monthly payments add up to €1,440 per child – before interest and returns.
An initial estimate by Sparkasse bank suggest that children who receive every payment could expect their account to be worth more than €100,000 by the time they retire at 67 without making any additional contributions of their own.
Here's how Sparkasse calculated:
- Deposited money: €10 x 12 months x 12 years = €1,440
- Assuming the Dax continues with a long-term return of about 8 percent per year, the custody account when the child is 18 years old would have €2,459.
- If no further money is added, and the growth rate remains the same, by the age of 67 that same account would be worth approximately €107,000.
- OR, if the account holder add a further €10 per month, by the age of 67 the portfolio would be worth around €175,000.
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Will it work?
A number of details remain unclarified: Chiefly, how will the savings be invested and who will manage them?
Financial experts are not immediately convinced that the plan will really encourage more thoughtful money management among young people.
Johannes Geyer, deputy head of the public economics department at DIW Berlin, told the US news outlet CNBC that it's "unclear" if the early start pension scheme will increase motivation to save for old age.
“When people receive money passively and basically don’t have to make any investment decisions themselves, it isn’t obvious how their financial knowledge is meant to be improved," Geyer said.
Similarly Christoph Schmidt, president of the RWI Leibniz Institute for Economic Research, called the idea "well-intentioned," but added that, "looking more closely there are hardly any convincing benefits of the concept".
Still, many of Germany's current school children, and their parents, will surely appreciate the gesture.
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