The Baby Fund | Christian Engel<br>Post<br>Cancel<br>Every working German gets a letter once a year from the Deutsche Rentenversicherung. Mine arrived a few weeks ago. It told me, in three decimal places, what my pension will be at retirement. It also explained in the small print that the system paying it can’t actually afford to.<br>The federal government already moves more than 100 billion euros a year into the pension system from general tax revenue. It’s the single largest line item in the federal budget. Larger than defense. Larger than education. Larger than all federal investment combined. And it goes up every year, because there are more retirees in Germany every year than the year before.<br>It is tempting to read this as a difficult engineering problem. I think the more honest reading is that it isn’t an engineering problem at all. It’s an arithmetic one. We just keep refusing to do it.<br>Germany has about 650,000 births a year. Imagine that on the day each German is born, the state opens a brokerage account in their name and puts 25,000 euros into a low-cost global index fund. The money is locked until age 67. Nobody can touch it. Not the parents, not the child, not the state. It just sits there for sixty-seven years, doing nothing more interesting than tracking the world economy.<br>The annual bill is 16.25 billion euros. Less than what we’ll spend on the Mütterrente alone starting next year.
Billions of euros per year. Sources: Bundesmittel zur Rentenversicherung (Bundestag, 2024). Mütterrente III combined cost from 2027 (ZEIT / Bundestag Drucksache 21/1929). Bürgergeld incl. KdU (BIAJ 2024 compilation). Frühstart-Rente full-rollout estimate (DAS INVESTMENT). Baby Fund is a rough figure: 650,000 births x 25,000 €.
If the fund earns 5% a year in real terms (about the long-run average for a globally diversified equity portfolio), the 25,000 euros grows to about 656,000 by the time the child retires. At 3% it’s around 180,000. At 7% it’s closer to 2.3 million. The exact number isn’t the point. The point is that under almost any plausible return, every German born from now on retires solvent without needing the pension system at all.<br>Initial deposit 25,000 €<br>Nominal return / yr 7.0 %<br>Inflation / yr 2.0 %<br>Years to retirement 67
Purchasing power (today's euros) Nominal (paper euros)<br>At retirement (today's €) € 656,380<br>Nominal (paper €) € 2,331,000
Compare it to what the state already pays. A typical German pensioner today gets about 1,200 euros a month, or 14,400 a year. Over a normal retirement of seventeen years, that comes to about 250,000 per person. The Baby Fund beats that under almost any plausible return. At a conservative 3% it gets you close. At the historical 5% real it pays nearly three times. The Baby Fund isn’t just cheaper than the current system. It actually pays the recipient more.<br>Late last year the cabinet passed something in this direction. It’s called the Frühstart-Rente. Since January, the state has been depositing ten euros a month into a private retirement depot for every child between the ages of six and eighteen. The money is locked, tax-free during accumulation, and supposed to compound until retirement. When it is fully rolled out, the program will cost about a billion euros a year. Each child gets 1,440 euros from the state in total.<br>Baby Fund (proposed): 25,000 € at birth Frühstart-Rente (actual policy): 10 €/month, age 6–18 Lifetime pension payout (median, today)
Frühstart-Rente at age 67<br>€ 21,900
Baby Fund at age 67<br>€ 656,300
Both compounded at 5% real return per year. Reference line marks roughly what the median German pensioner draws in total over a typical retirement (~€250,000, lifetime).
That’s the same idea at one-thirtieth of the scale. Ten euros a month for twelve years adds up to 1,440 euros. At 5% real, those contributions grow to about 22,000 by age 67. The Baby Fund grows to 656,000. A child who only gets the Frühstart-Rente still depends entirely on the pension system at retirement. The arithmetic doesn’t begin to fix itself at 1,440 euros. It begins to fix itself at 25,000.<br>So the German state has agreed that the right thing to do is deposit money for children, lock it in a retirement depot, and let compound interest do the rest. Then it has chosen to do this at the smallest scale at which it can plausibly be called a policy. The press release talks about empowering young people and laying foundations. The numbers underneath it talk about a thousand euros, spread over a decade, into a problem that needs hundreds of thousands.<br>You have to wonder why this isn’t happening at the scale that would actually matter.<br>Some of it is that politicians are extraordinarily bad at investing in things they won’t live to see. A 67-year horizon is sixteen election cycles. No party in a coalition gains anything from a policy whose payoff arrives in 2093. The Mütterrente, by contrast, pays out next quarter, to people who reliably vote for you. From a politician’s perspective, the choice...