Germany To Pay Into Pension Accounts For Children

Germany’s parliament Friday approved plans for the government to pay into pension accounts for children, with the funds invested in markets, marking a radical departure for Europe’s top economy.

Under the “Early Start Pension”, the state will pay 10 euros ($11) per month per child between the ages of six and 18 into an individual account invested in the financial markets.

Beneficiaries will not be able to access the money until they reach retirement age.

It should help take the strain off the existing, taxpayer-funded pension system, which is under pressure as the population ages.

“Children are our future,” German Chancellor Friedrich Merz said in a post on X.

“We’re leveraging the positive effects of the capital market for a long-term secure pension system.”

Investing the money into markets is a major shift for Europe’s top economy, which pioneered taxpayer-backed pensions under Chancellor Otto von Bismarck in the 1880s.

But pension payouts have become increasingly burdensome for taxpayers as the working population shrinks.

Births per woman in Germany have not been at or above the replacement rate of 2.1 since the 1970s, leading to a greying population.

Assuming an average annual seven-percent return on the total 1,440 euros paid in by the government, a retiree would have 53,000 euros, the government said.

Parents will be able to top up accounts and, if they add 50 euros a month, a child would have 300,000 euros at retirement, it added.

The Greens party and the far-left Die Linke voted against the bill, fearing it would boost inequality since better-off parents could pay more into accounts.

Though common in places like the United States and Australia, pensions backed by capital markets are controversial in cautious Germany where savers tend to prefer the perceived safety of cash.

Germans hold almost 40 percent of their household wealth in cash compared to an EU average of just over 30 percent, according to official data.

A commission established by the government has recommended introducing compulsory saving into market-backed pensions for the population as a whole.

Merz has said the government will implement the idea.