It’s never too early to start saving! The German government is planning to pay 10 euros per month, per child, into a new pension fund for all children aged between 6 and 17.
Germany’s CDU/SPD coalition government has announced plans to introduce a new pension scheme to help children save for retirement.
Starting January 2026, the coalition will open a Frühstart Rente (Early Start Pension) fund for every child aged between 6 and 17, and contribute 10 euros per month into each child’s fund until they turn 18.
When the child turns 18, the government will stop contributing to the account, but young people can continue to make payments of 10 euros per month if they wish to do so. During the savings phase, any returns that the account makes will be exempt from income taxes. Account holders will not be able to access the money until they reach retirement age; and when they withdraw the money upon retirement, it will be subject to taxation, like all other retirement income.
While more details about the scheme will become clear between now and January, it is likely that all children aged between 6 and 18 who are enrolled in the German school system will have an account opened for them automatically.
Everyone who works in Germany is required to pay into statutory pension insurance, the first pillar of the country’s pension system. People can also pay into company pension schemes or private pension schemes to “top up” their state pension. The Frühstart Rente would be introduced in addition to all of these schemes.
So, how much money will young people get from their Frühstart Rente fund when they retire? A child who receives the 10 euro per month payment every month between the ages of 6 and 17 will receive a total of 1.440 euros, before interest and returns.
According to Sparkasse, by the time the account holder reaches retirement age, currently 67 in Germany, the money in the account will have grown to around 107.000 euros, even if the account holder didn’t contribute any money themselves after their 18th birthday.
If the German stock index (DAX) continues its annual average returns of 8 percent (which has been the case since 1988) and the account holder continues to contribute 10 euros per month from the age of 18 to 67, their fund could be worth around 175.000 euros.
Of course, there are many uncertain factors at play here, including changing inflation, whether the retirement age will rise (which is quite likely) and whether account holders continue to make contributions after their 18th birthday.
Only in 2038 will the first age group who are eligible to receive all 12 years of the payment (those turning 6 in 2026) have received all their contributions. This means that authorities will have to wait at least 12 years to determine whether the scheme is working as intended.
Germany has one of the best pension systems in the world, but an ageing population means that the system is at risk of becoming unbalanced. This is because working-age people fund the pensions of current retirees, rather than retired people receiving the money they paid into their fund during their working lives.
In 1992, 2,7 people working people funded the pension payments of one retired person, but thanks to demographic changes, this burden now falls on 1,8 people, according to 2020 figures.
With more people moving into retirement and a lack of working-age people available to take over their roles, it is expected that just 1,5 people will be responsible for paying the pension of one retiree by 2030.
According to Chancellor Friedrich Merz (CDU), the Frühstart Rente scheme will be a relatively affordable way for the government to cushion this blow. With around 700.000 young people per age cohort, the fund will cost the government around 7 million euros monthly for each age cohort. When monthly payments to all 12 age cohorts are considered, the annual expense amounts to around 1 billion euros.
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