Retirement provision: How the “early start pension” is supposed to work

According to the federal government's wishes, the so-called early start pension should be a building block to make old-age provision sustainable. The coalition factions of the Union and SPD have already agreed to introduce this instrument. The Finance Committee decided on a corresponding draft, which is to be passed by the Bundestag today. The Federal Council must also agree.

What does the early start pension include?

The so-called early start pension is intended to strengthen retirement provision for young people. According to this, children aged six and over who were born in 2020 or later and are registered in Germany should receive ten euros from the state every month until they come of age. The money is invested in the capital market.

What do parents have to do?

To do this, parents must conclude a certified standard custody agreement for their child with a provider of their choice - such as a fund company. It is made out in the child's name and works similarly to a simple savings plan. According to the Federal Ministry of Finance, the eligibility check is carried out digitally by comparing data with the Federal Central Tax Office based on the child's tax identification number. The payment is made quarterly retroactively directly to the contract.

Do children whose parents do not sign a custody agreement also benefit?

If parents do not sign a contract, the federal government invests the ten euros per month in a special fund. This is managed by the Deutsche Bundesbank. Following a change by the Finance Committee, the funds may only be invested in broadly diversified global stocks or equity funds. The aim of the investment must be to build up the highest possible retirement assets in the long term. A specific return is not guaranteed and the federal government does not compensate for any losses.

Can parents or grandparents give money?

Yes, parents, grandparents or other sponsors can supplement the state subsidy with their own contributions. You can add up to 6,840 euros per year or 570 euros per month per child.

Can recipients continue to save when they are of legal age?

From the age of 18, you can continue to fund your retirement savings account with your own contributions until you retire. Alternatively, you can switch to another certified retirement plan contract. This is intended to enable a transition from the early start pension to subsidized private pension provision.

How much money can a child theoretically save by the time they retire?

The Ministry of Finance has outlined the potential in a model calculation with an assumed return of seven percent per year. The state payments would therefore amount to around 2,200 euros up to the age of 18 and around 53,000 euros up to the age of 65 if the money is continued to be invested after coming of age and is not saved additionally. These are purely model assumptions. A return is not guaranteed, and the values ​​are nominal and do not take inflation or subsequent taxation into account.

Are you free to decide what to use the money you save for?

No. The state funding is earmarked for retirement provision. The capital may not be mortgaged, sold or seized. Payment as a pension is generally only possible from the age of 65.

Do you have to pay taxes on the income?

The government contributions and the income from them are tax-free during the savings phase. Only later payments in old age are subject to subsequent taxation.

How much does the funding project cost the federal government?

The federal government expects funding expenditure of 198 million euros for 2027. Since another birth cohort is added every year, they are expected to rise to 411 million euros by 2030. There are also administration costs. Overall, the Bundestag Budget Committee calculates expenditure of around 1.2 billion euros for the years 2027 to 2030.

How does the legal process continue?

The Bundestag is deciding on the draft law today. The Federal Council must then give its consent so that the law can come into force.

When does the law come into force?

According to the draft, the law should come into force on January 1, 2027. However, the government funding of ten euros per month for the retirement savings account should apply retroactively to January 1, 2026.