The German government approved a bill on Wednesday to strengthen the private pillar of the pension system, which includes a state subsidy of 10 euros per month for children and adolescents aged 6 to 18 to create a retirement capital fund. This so-called 'early-start pension' is part of a broader reform package for the private pension system and will now be passed to the lower house of parliament. It strengthens the retirement provision for younger generations through an individual savings deposit for retirement. 'We are strengthening financial education, so that even children and young people engage with pension issues,' they added. 'With our decisions on pensions, we are generating the confidence that we can guarantee a secure income in old age in the long term,' stated German Chancellor Friedrich Merz. The German Ministry of Finance explained in a press release that the 10-euro monthly payments for those born in 2020 will be paid retroactively from January 1, 2026. From 2029, additional age groups that have not yet been considered will also be included. The reform of the private pension system includes the creation of a new product category: a pension deposit without guarantee requirements. This provides greater opportunities for profitability, the German government explains, adding that for those seeking greater security, guaranteed products will continue to exist, where the guaranteed capital can be 80% or 100% of the contributions made. For children and adolescents receiving the 10-euro monthly subsidy whose parents do not open a pension deposit, there will be a collective investment solution. In this way, the rights will not depend on the parents' decision, the government states. If a deposit is opened later, the funds accumulated in the collective solution can be transferred to a personal contract. In addition, parents will receive an additional 25 cents in subsidy for every euro contributed up to 1,200 euros per child, up to a maximum of 300 euros. A new entrant bonus will also be granted to young people entering the workforce, so that anyone who subscribes to a pension contract before turning 25 will receive a one-time additional subsidy of 200 euros. Meanwhile, the existing subsidy system, which includes tax exemption for contributions during the accumulation phase and taxation of benefits in the payment phase, will be maintained. However, the subsidy calculation will be structured proportionally to the contribution made. It is planned that for every euro contributed up to 1,200 euros, 30 cents (from 2029, 35 cents) will be received, and for the next up to 600 euros, 20 cents per euro. The maximum self-contribution subsidized in this way is 1,800 euros per year. Vice-Chancellor and Minister of Finance Lars Klingbeil emphasized that, 'with the early-start pension, we are giving young people a starting capital for their retirement provision from the very beginning.'
