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Local Germany
4 days ago
- Business
- Local Germany
'€10 a month': Germany to set up pension accounts for all children from age 6
With the planned introduction of an early start pension ( Frühstart-Rente ), the federal government aims to encourage school children in Germany to think about saving up for retirement from an early age. The plan, which was included in the black-red coalition agreement between the conservative Union and the centre-left Social Democrat parties, is that every child attending school in Germany will get €10 per month paid into an individual pension portfolio in their name. Payments would be made by the German state, and are due to start from the beginning of 2026. How would early start pensions work? The basic idea is that every schoolchild in Germany, from the age of six, gets a retirement provision account and that the state pays €10 into it monthly. The aim is to provide children with access to the capital market at an early stage, and encourage them to think about building up assets in the long term. According to current plans, these pension payments would be given to all children and young people in Germany between the ages of 6 and 17 who attend school. The money is to be put into an individual custody account, and remain tax-free until retirement. Advertisement From the age of 18, government payments would stop but children or parents and guardians could voluntarily make additional contributions to the account. According to the conservative Union parties, which brought the proposal, the deposit should be "protected from state access" and should only be paid out when an account holder reaches the standard retirement age. How much money are we talking about? In twelve years, the monthly payments add up to €1,440 per child – before interest and returns. An initial estimate by Sparkasse bank suggest that children who receive every payment could expect their account to be worth more than €100,000 by the time they retire at 67 without making any additional contributions of their own. Here's how Sparkasse calculated: Deposited money: €10 x 12 months x 12 years = €1,440 Assuming the Dax continues with a long-term return of about 8 percent per year, the custody account when the child is 18 years old would have €2,459. If no further money is added, and the growth rate remains the same, by the age of 67 that same account would be worth approximately €107,000. OR, if the account holder add a further €10 per month, by the age of 67 the portfolio would be worth around €175,000. IN STATS: Germans among the biggest money savers in the world Will it work? A number of details remain unclarified: Chiefly, how will the savings be invested and who will manage them? Financial experts are not immediately convinced that the plan will really encourage more thoughtful money management among young people. Advertisement Johannes Geyer, deputy head of the public economics department at DIW Berlin, told the US news outlet CNBC that it's "unclear" if the early start pension scheme will increase motivation to save for old age. 'When people receive money passively and basically don't have to make any investment decisions themselves, it isn't obvious how their financial knowledge is meant to be improved," Geyer said. Similarly Christoph Schmidt, president of the RWI Leibniz Institute for Economic Research, called the idea "well-intentioned," but added that, "looking more closely there are hardly any convincing benefits of the concept". Still, many of Germany's current school children, and their parents, will surely appreciate the gesture. READ ALSO: German voters back raising hourly minimum wage to €15
Time of India
28-05-2025
- Business
- Time of India
This European country is planning for 6-year-olds to start saving for retirement: Is this the future of financial freedom?
In a move that sounds more like a plot twist in a dystopian economic novel than a public policy, Germany is floating the idea of letting children as young as six start saving for retirement. Yes, you read that right — while most six-year-olds across the world are still learning how to tie their shoelaces or do basic arithmetic, German kids might soon be receiving government-sponsored retirement pots. But is this forward-thinking genius or just a symbolic gesture wrapped in economic optimism? Piggy Banks with a Pension Plan As per a report from CNBC Make It , Germany's coalition government has proposed an 'early start pension' plan — a retirement scheme designed for children aged between 6 and 18. Under this system, each eligible child attending school would receive 10 euros a month from the state. Over 12 years, this accumulates to 1,440 euros per child, not counting the potential investment gains that might grow over the ensuing decades. The retirement fund won't just be a stagnant bank account. The idea is that these sums will be invested, presumably in capital markets, and the resulting profits would remain tax-free until the beneficiaries reach retirement age — currently set at 67. If the age remains unchanged (which, let's be honest, is unlikely in an ageing Europe), these kids will see their savings mature over a span of more than 60 years. At 18, they can start topping up the account with their own savings — a gentle nudge into adulthood with a not-so-gentle reminder about their distant golden years. More Than Money: A Lesson in Financial Literacy? Proponents argue this scheme isn't just about building nest eggs. It's about embedding financial literacy into the national consciousness, beginning in childhood. The earlier you start learning about compound interest, investments, and saving, the more likely you are to become a financially savvy adult — or so the theory goes. You Might Also Like: Warren Buffett's shocking post-retirement plan at 94 will leave you amazed and inspired: 'I won't sit at home watching soap operas...' 'It's a way of getting children familiar with financial markets and the idea of long-term security,' suggest policymakers. It may also offer an entry point into economic conversations in homes where saving and investing aren't common topics. But is passive exposure enough? Critics Ask: Is It All Just a Feel-Good Fantasy? According to a report from CNBC Make It , not everyone is clapping for Germany's early retirement starter pack. Johannes Geyer of DIW Berlin believes the initiative, while symbolically powerful, may not hold much real-world value. 'The sum isn't significant enough to guarantee any meaningful retirement buffer,' he cautions. And as for the idea that simply having a savings account will boost financial literacy? Geyer remains sceptical. 'Being in contact with investment decisions doesn't mean you understand them — or benefit from them,' he explains. Christoph Schmidt, head of the RWI Leibniz Institute for Economic Research, goes a step further. He sees the proposal as fundamentally flawed — and even educationally misplaced. 'The very essence of saving — sacrificing today for a better tomorrow — is missing here,' he argues. Since children receive the funds passively, without needing to make choices or understand sacrifice, the true 'lesson' of saving is lost in translation. You Might Also Like: Not just early retirement: Banker spots an interesting trend among Indian couple in their 50s Schmidt adds that the money might be better spent enhancing the national education system rather than playing the long game with modest financial returns. A Future-Focused Fable or Financial Folly? Germany's early start pension scheme is, undeniably, a novel approach to retirement planning and financial education. It's visionary in its ambition: setting up the next generation with a financial cushion and potentially reshaping how society thinks about saving. But it also raises critical questions about effectiveness, symbolism versus substance, and whether handing out retirement savings to children actually teaches them anything meaningful about money. So, as the world watches this economic experiment unfold, one thing is certain — Germany's kids might soon be the youngest investors on the planet. Whether they grow up into financially empowered citizens or simply forget they ever had a retirement pot, only time — and perhaps six decades — will tell.
CNBC
28-05-2025
- Business
- CNBC
Six-year-olds in Germany could soon start saving for retirement
Most people begin saving for retirement when they start full-time jobs — but primary school kids in Germany could get an early start. The country's new government has made plans to introduce a so-called early start pension, setting up kids as young as six years of age with a retirement pot. Under the new plan, 6-18-year-olds who visit educational institutions could receive 10 euros ($11) each month from the government — coming to a total of 1,440 euros per kid across 12 years of eligibility, plus any profits that could accrue from the cash being invested. From the age of 18, people can add personal funds to the account within annual limits. Any profit is set to be tax-free until the age of retirement, when the cash becomes accessible to accountholders. Germany's current retirement age is 67 — and could always rise — meaning that the savings would accrue over a period of more than 60 years. Policymakers have also argued that beyond just setting young people up for the future, the initiative would also help them become more aware and knowledgeable about money, saving and investing. Many details are still uncertain. There has so far been no guidance on how the savings will be invested and who will manage them. Some experts say the total of these investments might not actually amount to a lot of money for each individual person, with Johannes Geyer, deputy head of the public economics department at research institute DIW Berlin, telling CNBC that the sum is ultimately mostly symbolic. Ideally, he says, the policy could motivate people to think about long-term financial security earlier in life and introduce them to capital markets, including in households where the topic might otherwise not come up in conversation. But Geyer points out that this scenario isn't necessarily realistic. "It is unclear if it increases the motivation to save for old age or improves financial knowledge," he said, according to a CNBC translation. "When people receive money passively and basically don't have to make any investment decisions themselves, it isn't obvious how their financial knowledge is meant to be improved. Simply being in 'contact' with investment decisions does not necessarily lead to good choices," Geyer explained. Christoph Schmidt, president of the RWI Leibniz Institute for Economic Research, struck a similar tone. "A fundamental error of the plan is that the actual lesson of saving — doing without now to have more tomorrow — gets totally lost," he told CNBC in translated comments. The funds would be better off used in the German education system, he added. "The basic idea of the early start pension, so giving young people starting capital when they enter adult life, is well-intentioned, but when looking more closely there are hardly any convincing benefits of the concept," he concluded.
