Retirement provision: Ten euros a month: How the early start pension works

Even children are supposed to provide for their old age soon - not with their pocket money, but with a monthly allowance from the state. The cabinet in Berlin has launched the so-called early start pension proposed by Finance Minister Lars Klingbeil (SPD). The idea is that the federal government should pay 10 euros per month into an old-age pension deposit for every child who turns six years old, up to their 18th birthday.

"We want everyone to be able to save better and earlier for old age," Klingbeil explained. So far, this has largely depended on the parents' home. With the new system, no child will be forgotten - and at the same time, children will be introduced to the financial market early on. Will all children get money? No. If the law is passed in the Bundestag, the money will initially go to children born in 2020.

From 2027, each year, the birth year of those who are then six years old will be added. Children who are already seven years old today will not receive any. Klingbeil says that somewhere you have to start. "But these are decisions that you have to make in politics."

What happens to the ten euros? The early start pension is a kind of starting capital for old-age provision. The money is to be automatically paid out to all children of the corresponding age group. It goes directly into a deposit, the returns of which are tax-free until the start of the payout phase. The subsidized capital is generally not paid out before the end of the 65th year of life.

The parents can choose which deposit to use - at least within certain specifications. For example, no closing and distribution costs may arise until the age of 18. If parents do not actively choose a deposit, a public capital investment managed by the German central bank will be used. By the age of 35, you can then transfer the money to your own deposit, Klingbeil said.

How much does it add up to? According to the Finance Ministry's calculations, the state subsidy alone creates a deposit value of around 2,200 euros by the age of majority. "This can turn into around 53,000 euros by the time you retire without any further payments," Klingbeil's ministry explains. However, parents and grandparents can also top up the deposit with voluntary payments - deposits of up to 6,840 euros per year are permitted.

If the parents add just 10 euros per month, the deposit can grow to around 107,000 euros by the time you retire, according to the Finance Ministry. With a monthly additional payment of 50 euros, around 320,000 euros could be accumulated in old age. These calculations are based on an assumed average return of 7 percent. In reality, the deposits may develop better or worse.

How expensive is this for the state? The federal government's expenditure on the early start pension is initially expected to be 198 million euros per year and is expected to rise to 411 million euros by 2030.

Is saving the only goal? No, the early start pension is also intended to ensure that more young people deal with the stock market. They should feel the value development in their own deposits - and also see that a temporary minus often balances out in the long term. The draft law speaks of "an early practical capital market experience for young people" with their parents.

This is intended to create incentives to continue private provision in adulthood with your own contributions. This is because private provision will become increasingly important in the coming years. The federal government has developed a successor to the unpopular private Riester pension. From the age of majority, the early start pension is to make a seamless transition into the new tax-favored private old-age pension.

The early start pension is "a real chance for the children in our country. And it is also a real chance to make the pension sustainable for the future," Klingbeil says.

How does the policy react to Klingbeil's plans? For the Left, the early start pension is a "senseless project". Pension expert Sarah Vollath told the "Rheinische Post": "The early start pension is nothing other than symbolic politics with which the federal government wants to bind even the youngest members of society to the capital market."

Affluent parents who can make their own contributions would additionally benefit from tax breaks, while poorer families would be left out. Trade unions also consider the concept to be wrong. The monthly 10 euros are just a small bait to drive families into the arms of fund providers, the IG Metall criticized. Instead of supporting the financial industry, the federal government should strengthen the statutory pension.

The new CDU General Secretary Franziska Hoppermann, on the other hand, defended the early start pension: "Young people benefit from the power of the capital market and the compound interest effect from a young age," she emphasized.