Germany’s Bundestag approved legislation to create a new state-backed pension savings scheme for children on Friday. Here’s what parents need to know.
Germany’s parliament has approved a pension scheme for children, marking a major step forward for a proposal that has been under discussion since the coalition government took office.
The bill still requires approval from the Bundesrat. If approved, the scheme will take effect in January 2027, with eligible children receiving support retroactively from 2026. As expected, the final version will exclude most of today’s school pupils.
Known as the Frühstart-Rente or “early start pension”, the programme is designed to encourage long-term saving from an early age by giving children a government-subsidised retirement investment account.
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A pension pot before children start earning
Under the new law, the federal government will pay €10 per month into a retirement savings account for eligible children from the age of six until they reach adulthood.
The contributions are intended as seed money rather than a complete pension solution. The government hopes that decades of compound growth will turn relatively small sums into a meaningful retirement asset later in life.
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To fund the programme, the federal government expects to spend around €198 million per year initially, rising to more than €400 million annually by 2030.
Finance policymakers behind the scheme argue that as well as helping to boost retirement savings, it will also introduce younger generations to the benefits of investing and long-term financial planning.
Smaller than originally planned
The government’s original ambition was to offer the benefit much more broadly to schoolchildren. But by the time the draft legislation was published, the scheme had already been narrowed to children entering the system at age six, rather than all existing schoolchildren.
The version approved by the Bundestag on Friday confirmed that approach. Support will begin with children born in 2020, who turn six in 2026 – and will then be extended to each new cohort of six-year-olds.
Children who are already seven or older when the scheme starts will not qualify.
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The law also specifies a stricter investment framework than earlier versions of the plan. Eligible accounts must invest in broadly diversified global shares or equity funds. Fees are capped and providers will not be allowed to charge upfront sales commissions while a child is still a minor.
According to the Ministry of Finance’s calculations, the government subsidy will result in a portfolio value of around €2,200 by the time the child reaches 18.
Without any further contributions, this could grow to around €53,000 by age 65. If parents contribute an additional €10 per month, the Ministry states the account could grow to around €107,000 by age 65.
These calculations are based on an assumed average annual return of seven percent.
What parents need to know
For many families, the most important question is whether they need to do anything.
Parents have the option to open an approved investment account themselves and have the government contributions paid into it.
Families will also be permitted to add their own money. Parents, grandparents and other relatives can make voluntary contributions of up to €6,840 per year.
But parents aren’t under any obligation to contribute money or open an account. If they don’t, the money will be placed into a default collective fund managed by the Bundesbank instead.
According to the plans, the government will pay €10 a month into the early-start pension until the child turns 18. The account will then transition into a tax-advantaged private retirement savings product.
The money is intended for retirement. Regardless of whether individuals keep paying into the funds, the idea is that the subsidised savings shouldn’t be accessed before the age of 65.
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The legislation and accompanying materials published so far don’t spell out how accounts will be administered if a family later leaves Germany permanently, or whether assets could be transferred into retirement products abroad.
But it does seem clear that the state contributions are tied to the child having their primary residence in Germany. If a family moves abroad, the monthly payments could be expected to stop
Parents should also be aware that investment risk remains with the account holder. If markets perform poorly over the long term, the government will not compensate investors for losses.
With reporting by DPA.
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