Is the Riester pension still worth it for savers?

The Riester pension has been around for around 20 years. Savers are supposed to use it to supplement the statutory pension. Many experts consider “Riestern” to be unprofitable and too expensive. Pension statistics also indicate this.

Little pension after a long phase of saving: According to experts, the Riester pension does not provide sufficient private additional provision for old age. They complain that high fees use up a large part of the capital before retirement.

On average 132 euros per month

The payout statistics for Riester pensions, which Federal Ministry of Finance in April published gives further impetus to critics of the Riester pension. The Riester pensions paid, which have already been paid to around a million Riester savers in 2022, average 1,581 euros per year. This results in a monthly additional pension of 132 euros. However, this amount is still subject to income tax.

The Riester pension is named after the then Federal Minister of Labor Walter Riester. It was introduced in 2002 to provide a second pillar to the declining level of statutory pensions: a state-supported private pension scheme.

Basic and child allowance plus tax advantages

Riester savers can pay up to four percent of their gross income into a contract, up to a maximum of 2,100 euros per year. State funding is deducted from your own contributions. It amounts to an annual basic allowance of 175 euros for each contracting party, plus 300 euros per year for each child born after 2008 as a child allowance. For children born before 2008, the allowance is 185 euros. The contributions made can be claimed as special expenses for tax purposes during the savings phase.

Various forms of savings are used as Riester contracts, but they always guarantee receipt of the contributions paid in when you retire. German citizens have paid their Riester installments into bank savings plans, fund savings plans and the so-called residential Riester, but above all into insurance contracts.

High fees reduce returns

Above all, this is where high fees for pension savers come into play, as Britta Langenberg, retirement planning expert for the citizens’ movement “Finanzwende” complains: “The costs are a core problem for many Riester customers because the contracts are often too expensive. We have each other I have already looked at pension insurance and Riester fund savings plans for a long time. In the case of Riester pension insurance, almost every fourth euro paid in went towards the costs.

At their peak, the costs were as high as 38 percent. “So out of 100 euros, 38 euros went into costs and only 62 euros into retirement provision.”

The return on the products is significantly reduced in the long term; a large part of the allowances is eaten up by the fees, especially in the case of insurance contracts. Old insurance contracts in particular can still score points with high guaranteed interest rates. However, during the period of low interest rates on the capital market over the past decades, this guaranteed interest rate was continually reduced – most recently to 0.25 percent. A Riester contract in the form of insurance in particular becomes less and less worthwhile when taking out a new one.

Each contract should be examined individually

Every pension saver should only decide after a thorough examination whether Riestern is still worth it after a thorough examination, says Katharina Lawrence from the Frankfurt consumer advice center: “You shouldn’t just look at the allowances and tax advantages, but really look at the contract. There The important thing is to look at what costs I have, how does it work out and is this a product that also meets my sense of security.”

For many Riester savers, the calculation no longer seems to work. According to estimates, around one in five Riester contracts is no longer being served. The total number of existing contracts has already been declining since 2018. And providers are also withdrawing more and more from the Riester business. Bank savings plans are no longer available as Riester variants and insurers and fund companies have also scaled back their offers; Riester is often no longer a profitable business for them either.

It’s better to be exempt from contributions than to quit

If you no longer want to use your Riester contract, you have several options. You can make it exempt from contributions, i.e. shut it down, or terminate the contract. Or withdraw money from the Riester account. The consumer advice center advises against terminating it: “The first option is: If you see that the contract isn’t going so well, that it doesn’t bring what I was hoping for in terms of income, I would like to make it free of contributions. Termination is really the last thing, “What you should consider is that quitting means not only having to pay back the benefits, but also the tax benefits you received,” said Lawrence.

You can make a Riester contract contribution-free by writing an informal letter to the provider. Payments can also be resumed later. The capital of all Riester variants, whether insurance or fund savings plans, can also be withdrawn in whole or in part for residential purposes. This can be used to finance the purchase of a property, for example, or to finance energy-related renovations or age-appropriate conversions of your home. The application is submitted directly to the German Pension Insurance.

The next reform is coming

In order to make “Riesters” more popular again among Germans, the federal government has planned to reform the Riester pension again this year. A specially appointed working group has developed proposals. For example, they provide for simplifying the calculation of allowances or making payments more flexible during the retirement phase.

However, experts like Britta Langenberg do not expect Finanzwende to be a big success. They advocate a state-controlled pension product: “We do not believe that the Riester pension can be reformed. There have been a wide variety of attempts at reform over the past 20 years. That has led to nothing. We therefore believe that there is “We need a fundamental system change, namely towards a simple, a cost-effective and a state-organized product.”

If the Tegierung’s proposals for reforming the Riester pension are addressed, Riester savers can then reconsider whether their contract is still worthwhile. Or if a new deal makes sense for you.