Compound interest: the real gift of long time
Note: The Early-Start Pension this article refers to is only planned so far (key points 17 Dec 2025). The following examples are model calculations.
When building wealth for children, the size of the savings rate is often discussed. Yet another factor is far more decisive: time. This is precisely where the strength of the planned Early-Start Pension lies. A child starting at six has around six decades of investment time until retirement – a horizon that hardly any adult still reaches when saving for themselves.
How this long time affects the final amount is best explored yourself. In the Early-Start Pension calculator you can move the year of birth and watch how strongly each additional year of investment time changes the result.
What compound interest means
Compound interest means: returns are not paid out but stay in the account and generate returns themselves. In the first year only the contribution grows. In the second year the contribution plus the previous year's return grows. With each year the base on which the return acts grows larger – growth accelerates.
Over short periods the effect is barely noticeable. Over six decades, however, it dominates the result completely: by far the largest part of the final value then consists not of the contributions but of the accumulated growth.
Why the early years are the most valuable
A euro invested at age six has longer to grow than a euro invested at 30. That is why the first amounts paid in are the most valuable – they go through the most rounds of compounding.
This explains why the comparatively small state contributions between ages 6 and 18 can make such a large contribution: they sit right at the start of the long investment period and benefit maximally from compound interest. A contribution made only at 40 would have to be considerably higher to reach the same final value.
A vivid thought experiment
Imagine two children. For the first, contributions start at age six; for the second, only at 18. Both then invest the same amount. Despite only a twelve-year head start, the first child ends up clearly ahead – solely because of the extra compounding years at the beginning. This is exactly the head start the Early-Start Pension grants through its early start.
How large the difference is in your case is shown by the calculator: compare a scenario with early funding against a later, purely private savings start.
Staying realistic
Compound interest is powerful, but not a sure thing. The calculations assume a constant return; in reality, capital markets fluctuate and can bring losses. Over very long periods, broadly diversified investments have nonetheless historically achieved decent average returns. What matters is staying the course – and for exactly that, the fixed lock-up until retirement in the Early-Start Pension is both a curse and a blessing.