The Riester pension was considered unattractive due to high administrative costs and low returns, now it is being replaced by a new private pension provision. The Bundesrat cleared the way on Friday for the state-subsidized pension model. It is intended as an additional pillar alongside statutory pension insurance to encourage more people to set aside money privately for old age.
Private pension provision will thus become "cheaper, simpler and less bureaucratic," declared Federal Finance Minister Lars Klingbeil (SPD). Among other features, an easy-to-understand standardized product will be introduced, designed to make it easier for low-income earners to enter capital-funded private pension provision.
In addition, there will be a choice between other models with guaranteed payouts and offerings without guarantees, where higher returns are possible through investments in equity funds within a pension depot.
For every euro contributed, the state will add 50 cents, up to a maximum savings contribution of €360. For savings contributions between €360 and €1,800 per year, there will be 25 cents in state funding per euro. This results in a maximum basic subsidy totaling €540. A child bonus is also planned, which will reach €300 per year with a monthly savings contribution of just €25.
"We are making it easier for all generations and all income levels to provide privately for old age," Finance Minister Klingbeil explained. This means that "even people who don't have hundreds of euros left over at the end of the month" can benefit more from this supplement to statutory pensions. The capped completion and administrative costs of a maximum of one percent are important for this purpose.
Consumer protection advocates still consider this cost cap too high. They had demanded a cost limit of a maximum of 0.5 percent and supported this with sample calculations showing that costs of one percent could consume a significant portion of the subsidy advantage.
According to the advisory platform Finanztip, half a percentage point higher fees could cost around €28,000 in assets over the term of a contract. In an earlier draft law, the cost ceiling had been set at 1.5 percent; it was lowered to one percent following criticism from consumer advocates.
Another new feature is the inclusion of self-employed workers in the circle of eligible earners. This was among the demands made by the Bundesrat. Around 3.6 million self-employed people will now receive full access to state subsidies for the first time, explained the German Insurance Association (GDV). Existing Riester contracts remain protected. "This combination of modernization and reliability is exactly what's important," explained GDV Deputy CEO Moritz Schumann.
In an additional resolution, the Bundesrat expressly welcomed the reform. However, the federal government is being asked to examine whether the planned standard product can be designed in such a way that investors can also choose a variant that takes sustainability criteria into account.
As a next step, the federal government wants to introduce the so-called Early Start Pension. Children and young people from age six to 18 will receive an individual pension depot. There will be a monthly subsidy of €10 from the state for this. "With this, we give young people seed capital for private pension provision early on," Klingbeil explained.
The Riester pension, introduced in 2002, has regulations considered complicated and sometimes difficult for consumers to understand. Administrative costs are also considered high. Moreover, only a small portion of contributions can be invested in a risk-oriented manner. High returns are therefore hardly possible.
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