After weeks of wrangling, the CDU/CSU/SPD coalition has agreed on a pension package. However, the debate on retirement provision in Germany goes beyond the guaranteed threshold and the so called mothers' pension. On the eve of the vote in the German parliament, Christian Lindner, former Finance Minister in the SPD-Green-FDP coalition government, discussed the security of German pension provision with Cvetelina Todorova, head of department at the German Investment Funds Association (BVI), and Martin Stenger, sales director at Franklin Templeton. The „Zukunft Kapital 2026“ conference in Frankfurt was organised by Franklin Templeton.

One controversial issue in state pension provision is the so called early start pension. What began as a proposal by economic experts to promote financial education in Germany has been cut back for the time being, due to tight budgets. According to the coalition agreement, all six to eighteen year olds are to receive the subsidy: ten euros per month into an individual private stock portfolio. However, this project would have cost a good 1 billion euros per year for all age groups. As the public coffers are empty, the coalition has decided to introduce the subsidy gradually. This means that next year, the subsidy will initially only be paid to six year olds, with other age groups following later.

The idea of introducing young people to private pension provision is generally welcomed by financial market players, but the concrete implementation by politicians is often criticized. Todorova from the BVI warns that "it could be a false start for pensions,“ because she is not sure whether the subsidy in this form will make much difference. Specifically, she criticises the fact that the proposal currently provides for the state to offer a default solution for those whose parents do not choose an individual savings fund. That is not how financial education works.

Christian Lindner does not think the proposal goes far enough: „If you are serious about it, you should start at zero years and offer an attractive connection from the age of 18 – because it is the years between 18 and 66 that are important.“ He also warns that „Germans are saving themselves into poverty because the majority of their retirement provisions are in their checking accounts.“ Only the key points of the early start pension will be decided this year, before they are incorporated into a draft law.

Lindner looks at Sweden, and warns that "we should have started 25 years ago – and in any case, we should not wait any longer.“ A funded pension was introduced in the Scandinavian country 25 years ago, which today ensures a better pension level.

The German pension system is based on a three-pillar model: statutory pension insurance, which is financed by contributions from employees and employers; occupational pension schemes, which often consist of a mixture of deferred gross salary and a contribution from the employer; and individual pension provision in the form of private pension or life insurance policies or investments in real estate or shares.

Lindner views returns based on capital markets gains as the key to a more market friendly environment in Germany.