„The earlier you start saving for retirement, the better,“ said Henriette Peucker, Chief Executive Officer of the Deutsches Aktieninstitut (DAI), in reference to the early start pension planned by the federal government, speaking to the press recently in Frankfurt.

Done the right way, it could be an entry point into a savings scheme starting in childhood, she noted. Above all, Germany needs more equities in retirement provision to make the pension system future-proof.

„To be successful, the early start pension should begin at birth, allow additional contributions from third parties such as parents or grandparents, and, most importantly, reach every child. Simple and low-cost retail products make it possible to achieve reliable long-term savings,“ said Peucker. „Targeted retirement provision requires that the early start pension be transferred directly into a retirement savings account after the age of 18.“ She emphasised the importance of competition among private providers’ product ranges, the introduction of a minimum equity quota, and the digitalisation of account management.

These are the conclusions of the study „Children’s Accounts in International Comparison – What Can We Learn from Abroad for the Early Start Pension?“, presented by the DAI and Vanguard. While children’s accounts in other countries have different objectives, the savings principle can be fully applied to retirement provision. The 27-page study compares early start accounts in France, the United Kingdom, Israel, Canada, and the USA, highlighting success factors and recommendations for Germany.

The current governing coalition agreement provides that every child attending an educational institution in Germany should receive government contributions of ten euros per month from age six to 18 into an individual, capital-funded, privately managed account. The savings accumulated through this early start pension are intended to be paid out and taxed only from retirement age.

Although there are discussions in Berlin about the early start pension, no draft legislation has yet been presented, Peucker explained. And it is unfortunately decoupled from a reform of the Riester pension and the overall retirement system. The January 1, 2026, target is no longer feasible in the parliamentary process. Several important questions remain unresolved. There is a significant risk that only a single age cohort would be included at the introduction of the early start pension. But it would be better to include all cohorts from six to 18 years of age equally.

„Children’s accounts provide the opportunity to save for retirement. They are a gateway to financial education and can motivate young investors to continue making private contributions even after state contributions end,“ emphasised Sebastian Külps, Managing Director of Vanguard Europe. „If Germany introduces the early start pension now and learns from international approaches, children can benefit from the capital market at an early age, and enjoy a significantly improved retirement provision in the long term.“

Külps also emphasised the importance of starting pension contributions as early as possible, noting that "an extra six years makes a huge difference.“ The study illustrates this in an example calculation (with a monthly savings rate of ten euros and an annual return of 6%), showing the significant differences that result solely from whether savings begin at age six, or from birth up to age 18. In the latter case, without any additional contributions, savings at age 67 amount to 66.542 euros compared with 36.322 euros when starting at age six. Those who continue to save ten euros per month beyond age 18, of course, reach substantially higher totals.

„Starting early and investing regularly works,“ Külps demonstrated, outlining the recipe for successful private retirement savings. Society’s perspective on the capital markets needs to change, and "financial education is crucial on this topic.“ In this way, the early start pension could also be a step toward greater financial literacy in Germany.

It is therefore important to follow the basic rules of successful equity investing. Broad diversification increases the chances of success and is particularly achievable with small investment amounts through ETFs and funds. Külps also advocated a high equity allocation for long-term savings processes. „If you have this investment horizon, guarantees are just a cost,“ Peucker said.

Costs for the Riester (a government subsidised private pension product) are sometimes extremely high. This is due to the guarantees in the Riester, as well as its bureaucratic structure. For both Peucker and Külps, it is crucial that products for the early start pension are designed to be as simple and digital as possible. The products could then be funded following appropriate certification.

Both the DAI German and Vanguard are in favour of a privately managed solution with strong competition among providers. With a suitably digitalized early-entry pension, this approach would also result in low costs.

According to the study, the process of account opening and management should be fully digitalized. Account opening could occur without paperwork by using the tax identification number, which is automatically issued at birth. Mandatory coverage of the early start pension and other retirement provision options in schools would also be helpful as a way to promote financial literacy.

Educational enrollment as the basis for the early start pension, as envisaged in the coalition agreement, makes things more complicated. Whether this approach can work is at least questionable.

Even with state support, not every parent automatically opens an early start pension for their children. „For children whose legal guardians do not open an account, it should be set up automatically,“ the study recommends. „This way, the early start pension benefits all children, regardless of their social background.“ Experience from abroad shows that standardised solutions from private providers with a high equity allocation are suitable for automatically opened accounts, enabling attractive long term returns.

In addition, additional contributions from legal guardians and other third parties – such as relatives, friends, or foundations – are necessary to fully exploit the early start pension’s potential for retirement savings. The state contributions of ten euros per month should also be increased to ensure a sufficient income in old age.

Above all, attractive tax incentives are also crucial for the success of the early start pension, drawing on examples from abroad. „We advocate for tax-free capital gains, similar to the French or British model,“ said the DAI and Vanguard. „Allowing private contributions to be tax-deductible also makes sense, as it creates incentives to top up the state contributions with additional payments from third parties.“

It is important to view retirement provision comprehensively. According to the study, the children’s account should automatically be converted into a retirement savings account upon the child’s 18th birthday.