“Early start pension” from the federal government: capital market training for small children

The federal government wants to arouse children's interest in the capital market with the so-called early start pension. If they learn in elementary school how well the 10 euros a month that the federal government invests for them increases, they will – the federal government and the insurance industry hope – continue to invest in a private pension for the next 47 years as adults. Through early “feeding” and individual contracts, which are intended to enable seamless connection to tax-subsidized private pension provision from the child’s age of majority, entire cohorts are brought into the private insurance industry.

The federal government never tires of emphasizing that the “early start pension” is not only associated with material support, but also with a specific educational mandate: young people should be convinced of the seemingly effortless income on the capital market as an investment for the future.

High returns are promised in order to get children and parents interested in private pensions. With a net return of 7 percent, the 1,440 euros in funding should become 53,000 euros by the age of 65. In addition, state-funded private pension provision should be paid out before the statutory retirement age. While the CDU is campaigning against the deduction-free pension after 45 years of contributions and the retirement age is set to rise beyond 67 in the future as life expectancy increases, private pensions already exist at 65.

holds a doctorate in economics and was responsible for social security at the International Labor Organization (ILO) for many years.

In order to achieve the desired high return, the law states that the money should be invested “exclusively in broadly diversified global stocks or equity funds”. Guarantees are deliberately avoided so that the money can be invested profitably without any restrictions and at full risk. But a net return of 7 percent is risky and ambitious. If things go wrong on the capital market, it is not the problem of the federal government or the insurer, but rather the bad luck of the insured.

So that the funding does not end up predominantly with the insurers, as with Riester, the law limits the permissible effective costs to 1 percent - which is still ten times the Swedish sovereign wealth fund. However, new customers with monthly contributions of just 10 euros are not particularly attractive for insurers.

It becomes more worthwhile thanks to the legally subsidized private payments: wealthy parents or grandparents can pay up to an additional 6,800 euros annually. No taxes are levied on capital gains for 59 years until retirement. This is socially and politically senseless support for higher earners. How many parents and grandparents get on board with this is unclear. Some people may prefer training insurance, ETFs or Christmas presents over investments that the little ones won't be able to use until they're 60 years old.

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To be on the safe side, the legislature therefore makes state (!) funding dependent on the conclusion of a private (!) pension contract. The state invests the money collectively for children whose parents do not take out an insurance contract. However, the approximately 2,000 euros saved up to the age of 18 will only be available to those who have concluded a private pension contract by the age of 35 at the latest; otherwise the money goes back to the state. In plain language: Only those who can afford to take out private insurance contracts beyond statutory social security can benefit from state funding.

A tenth of all people living in Germany are in debt and struggle with installment payments. A quarter have no savings. These people cannot afford private provision. Many of the poorest children are therefore likely to miss out on the early start pension. There is another catch for low-wage earners or people with broken working histories: If they manage to save up contributions for private pension provision throughout their lives, but are dependent on basic security in old age due to the low statutory pension, the private additional pension will be partially offset against the social assistance benefit.

The state goes into debt to finance the early start pension. He will pay interest for 60 years before the first pension is paid out. Citizens' uncertain interest rate of 7 percent is offset by guaranteed interest on debt from the state of 3 to 4 percent. The state goes into debt to support those who can afford private provision anyway. In addition, it is a nice support program for the insurance and financial industries. It is not surprising that the Chancellor, as a former BlackRock lobbyist, thinks this is good. Why Social Democrats are proud of this is incomprehensible.

There are far better ways to help the younger generation. The best guarantee against poverty in old age and for a good pension is a good income during your employment period. Good training is essential for this. The Pisa study has just confirmed again that Germany has fallen further behind in education and that in hardly any other country does social background determine educational success as much as it does here. To get a fair start in life, you need early support.

Better than capital market training for small children are language support and primary schools that teach all children to read, write and do arithmetic. And the money for the early start pension should also be available as a training support fund and should pay every young person a one-off start-up aid of 2,200 euros when they start vocational training. Because nothing makes poverty in old age more likely than a lack of vocational training.