New investment options, more attractive subsidies, and the inclusion of self-employed workers: A new tax-subsidized retirement savings model is set to replace the current Riester pension. The coalition parliamentary groups presented a draft law on private pension provision on Tuesday, which is scheduled to be passed by the Bundestag on Friday. The Greens and consumer protection advocates particularly welcomed the new standard product, which is intended to make it easier for low earners to enter private pension provision.
The draft provides for the introduction of a pension savings depot without guaranteed return requirements, which can invest in funds or other asset classes. Pension savings contracts will also be available as a simpler, so-called standard product in the future. This is to be offered by a public provider. The exact design is to be determined in further consultations.
The costs of all standard depots over the entire contract period are to be capped at one percent of effective costs. Another new feature is the inclusion of self-employed workers in the circle of those eligible for subsidies, as they also face "precarious situations", said Frauke Heiligenstadt, financial policy spokesperson for the SPD parliamentary group, when presenting the plans. Until now, it was mainly employees who had the opportunity to "riester".
For the basic subsidy, from the start of the reformed Riester pension in 2027, there will be 50 cents from the state for every euro paid in, up to a maximum of 360 euros. For a savings contribution of 360 euros to 1,800 euros per year, there is still 25 cents of state funding per euro. The child allowance of 300 euros per year can be achieved with a savings contribution of just 25 euros per month.
The government's plans to reform private pension provision disadvantage low-income households, according to a study by the union-affiliated Hans Böckler Foundation. Compared with the current Riester pension, insured persons would benefit more from the reform the more they earn, states the study published by the Economic and Social Science Institute (WSI) of the Hans Böckler Foundation. "Those who have are given more", WSI pension expert Florian Blank summarizes his findings.
The Riester pension, introduced in 2001, was intended to help broad sections of the population access private pension provision. However, the system enjoys only limited popularity because it is considered too complicated and generally yields only low returns. The subsidy structure is designed so that people with lower incomes and people with children particularly benefit from the state allowances. Measured against their own savings contributions, low earners with Riester pensions have so far received more from the state than higher earners.
According to the WSI study, this is now changing with the government's plans to reform the Riester pension. These end "the previous practice of allowing people with low incomes to benefit particularly", explained WSI pension expert Blank. The plans would result in an even greater social imbalance.
The state supports private pension provision in two ways: through direct subsidies and through deduction of pension contributions from taxable income. In the first case, smaller incomes benefit primarily, in the second, larger ones. According to WSI, under the new model, flat-rate subsidies are replaced by percentage amounts, depending on the amount of the savings contribution made by the individual. At the same time, the upper limit for tax-deductible pension contributions is set to rise.
This means that people with higher pension contributions would benefit "significantly and all the more, the higher their income". While the special expense deduction was previously limited to a maximum of 2,100 euros, the new calculation could now result in almost 2,900 euros for someone with two children, for example, which could bring over 1,300 euros in tax savings, the WSI calculates.
WSI expert Blank has calculated the financial consequences using examples for people with different incomes, with and without children. According to the institute, the comparison shows concretely how social equalization in the new subsidy system would decrease, especially for those with lower incomes.
For example, single people with 1,000 euros monthly gross income receive subsidies of 175 euros per year under the old law. Under the new law, this would drop to 144 euros if the person saves four percent of their gross income. Beyond 2,000 euros monthly gross, however, higher subsidies would flow after the reform. For a childless person with a monthly income of 8,000 euros gross, the annual subsidy would increase from around 990 euros to around 1,060 euros. For insured persons with children, the basic pattern is similar, "the imbalance even more pronounced".
The consequences are also noticeable in the proportion of state subsidies to total pension contributions. For people with low incomes, the subsidy would be lower under the federal government's plans, "especially for people who have hardly any income". Above that, under the proposed new law, the subsidy rate would rise continuously beyond 2,000 euros monthly gross.
Federal Finance Minister Lars Klingbeil (SPD) explained that with the reform, private pension provision would become "cheaper, simpler and less bureaucratic". It will now be "easier for all generations and all incomes to make private provision for old age". The clear cost cap will ensure that "even people who don't have hundreds of euros left at the end of the month can benefit more from this supplement to statutory pension".
Union parliamentary group leader Jens Spahn (CDU) expressed the expectation that in future it will be possible to save for retirement "more flexibly and above all with better return opportunities", for example with ETF savings plans and shares.
The Greens praised the publicly managed standard product, saying that the CDU/CSU and SPD had apparently based it on their proposal for a citizens' fund. This was just as welcome as the fact that the coalition was thus distancing itself from SPD Finance Minister Klingbeil, "who did not want such a solution", declared Green financial politician Stefan Schmidt.
However, Green spokesperson for financial policy Katharina Beck criticized that by foregoing automatic participation of all citizens "with a free opt-out option", as the Greens had demanded, the coalition was missing "the great opportunity for a real fresh start in private pension provision for the broad population".
Ramona Pop, board member of the Federation of German Consumer Organizations, welcomed the agreement as "a milestone for consumers" and "a good day for everyone who has to make private provision". Finally, there will be a standard product for everyone that is intended to be low-cost and high-yield.
Left Party parliamentary group leader Sören Pellmann, however, announced resistance to the plans. The "already outdated Riester pension, which has failed miserably", is now to be reintroduced via a new model. Instead of private provision, there must be greater reliance on adequate statutory pension, he said, calling for an increase in the pension level to 53 percent and an expansion of the circle of contributors.
The insurance industry called a separate state standard product as the third pillar of pension provision a "wrong approach". "The state's task should be to enable private provision, not to displace private pension products through a state fund", declared Jörg Asmussen, CEO of the German Insurance Association (GDV).
The federal government aims to enable a new range of private pension products. A corresponding draft law is scheduled for final debate in the Bundestag on Friday. In addition to security-oriented investment products, a return-oriented pension savings depot will be permitted in future, which can invest in funds or other asset classes.
This year, the early-start pension for children and young people is to be passed as another building block of private pension provision. From January 1, 2027, the new private pension products are to be available.
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