The German government plans to start subsidising private retirement savings from childhood under a new state-funded scheme. Federal Finance Minister Lars Klingbeil (SPD) introduced the bill for the so-called Early Start Pension (Frühstartrente) in the Bundestag on Friday. Under the proposed scheme, the federal government would contribute €10 per month for children and young people aged between six and 18.
The new retirement savings model is a “sign of greater fairness in our country”, the SPD politician said. “Ten euros a month may perhaps sound like very little at first,” Klingbeil said. “But because the state starts early, large sums accumulate over decades: from the state subsidy alone, a contribution of €53,000 can be built up by retirement age.” If parents or grandparents also contributed €20 every month, the amount accumulated by retirement age would reach €160,000, he said.
The government’s Early Start Pension is intended to introduce children to funded retirement provision at an early age. Children and young people between the ages of six and 18 would receive state support to build up a retirement savings account. The state would pay €10 per month into an individual, funded retirement savings account. All children and young people whose first residence is in Germany would be eligible.
The Early Start Pension is intended to begin with the 2020 birth cohort, retroactively from January 1, 2026. From 2027 onwards, the cohort reaching the age of six that year would be added each year. Contracts could also be opened for younger people from earlier birth cohorts who are under 18, but they would not receive state contributions.
Once they reach adulthood, individuals would be able to continue making contributions to their retirement savings account independently. They would also be able to switch to another certified retirement savings contract.
Klingbeil told the Bundestag that many families already make provisions for their children’s retirement today. “But it is often the children from families where people can afford to put €20 or €30 aside each month,” the SPD politician said. “It is still the case that far too often, it is the parents’ financial situation that determines what future children in our country have – and we are breaking that open to some extent with the Early Start Pension.” He stressed: “We want all children to benefit from this.” The state subsidy would be applied for automatically through the provider of the retirement savings account.
If parents do not open their own retirement savings account for their child, the subsidy would not be lost. Instead, the money would be transferred to a newly created special federal fund. The fund would be managed by the German central bank, the Bundesbank, and invested broadly across the capital market.
Those entitled to the funds would have until the age of 25 to transfer the accumulated assets into their own certified retirement savings contract. “If a child falls through the cracks because the parents do not take care of it, then the state steps in through the Deutsche Bundesbank,” Klingbeil said in the plenary session. “Here, we will invest the money for all children whose parents do not take care of it. In this way, we guarantee genuine equal opportunities in our country.”
Following its first reading on Friday, the Bundestag referred the bill to the relevant committees for further consideration. The legislation is expected to be finally passed in a few weeks.
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