In a working paper, Ulrike Malmendier, Claudia Schaffranka and Milena Schwarz show that the “early start pension” (Frühstart-Rente) offers the opportunity to break new ground in pension provision and introduce an entire generation to the capital market at an early age. Positive experiences with the capital market can shape investment behaviour for decades, strengthen the stock market culture in Germany and thus also increase personal responsibility for pension provision in the long term.
However, for this to succeed, the mistakes of the Riester pension must not be repeated. For the “early start pension”, low-bureaucracy implementation, a transparent and cost-effective product selection and a high-yield standard product are essential. Whether the “early start pension” will be successful also depends crucially on whether it is sensibly integrated with a reformed, subsidised private pension scheme. This will ensure a seamless transition to adulthood and guarantee both returns and security in retirement – even without resorting to cost-driving guaranteed products.
The working paper entitled ‘Generation Early Start Pension’ discusses how this project can be implemented in a beneficial manner. It also contains a simulation of the portfolio values of the “early start pension” according to different investment horizons.
