Finance Minister Lars Klingbeil (SPD) has presented the detailed plans for the long-awaited Early Start Pension, which the coalition government intends to implement. The Ministry of Finance submitted the draft bill for internal departmental review on Wednesday, according to reports from the Funk media group’s newspapers.
The core of the proposal is to help children build early savings, addressing the issue that financial security often depends on parents’ income and wealth, leading to inherited inequality until old age. The goal is to equip young people with initial capital for private saving, thereby improving both retirement provisions and opportunities for children.
Under the draft, the state will provide initial support by depositing ten euros monthly into certified savings products for children starting from the age of six. Parents have the option to supplement this amount through voluntary contributions, potentially boosting the annual total up to €6,840.
This pioneering system aims to bring children into the world of capital-backed retirement planning. The Early Start Pension is scheduled to begin for those born in 2020, effective retroactively from January 1, 2026. Starting in 2027, the cohort of six-year-olds will join the program.
Various safeguards and administrative details are stipulated in the draft. Children must demonstrate German residence to receive the state funding. Parents can open the savings accounts through private providers of their choice. The Finance Ministry mandates a maximum effective cost cap of one percent for these vehicles, and no setup or distribution fees may be incurred until the child reaches age 18. State funding will be automatically applied through the chosen provider and paid out quarterly retroactively.
A crucial provision addresses children whose parents do not open a private savings account. In such cases, the state funding is not forfeited. Instead, the funds are allocated to a newly established special fund of the Federal Government. This fund will be managed by the Bundesbank and invested broadly in the capital market. Individuals affected by this procedure can transfer the accumulated assets into their own certified retirement contract by the age of 25.
During the saving phase, the returns generated are tax-exempt, and the state contributions are not subject to income tax. However, the subsidized capital is not permitted to be distributed until the recipient reaches the age of 65.
Economically, the Federal Government estimates that the initial cost of the Early Start Pension when it begins in 2027 will be 198 million euros. This expenditure is projected to increase to 411 million euros by the 2030 fiscal year, as more eligible birth cohorts are added. The legislative process to finalize the Early Start Pension is expected to be completed within this year.
