The promises were big, but the results were often more than meager. The Riester pension was supposed to be a supplementary pension in old age, but instead it was mainly banks and insurance companies that cashed in.
When Gerhard Kegreiss retires, his Riester fund savings plan at Union Investment is due. He paid in for almost 17 years – together with the state grants more than 36,000 euros. At that time, he was predicted to have savings of around EUR 70,000 and a monthly Riester pension of EUR 360.
But the reality was a little different. Because the fund company Union Investment did not generate a cent return with its money. Kegreiss therefore only gets 72 euros a month.
Every fourth euro for fees
But it’s not just funds and bank savings plans that are going badly. The citizens’ movement Finanzwende analyzed the key data from 65 Riester insurance companies in 2020. The result is sobering.
With an average Riester insurance policy with 30 years of savings, an average of 24 percent of the money paid in goes towards fees – i.e. almost every fourth euro. Every third Riester policy even collects 30 percent for fees. These are made up of commissions, executive board salaries in the millions, advertising and returns for the shareholders.
For comparison: the statutory pension incurs administrative costs of around three percent. In addition, 50 billion in tax money has flowed into Riester since its inception. From the perspective of consumer advocates, the Riester concept has failed after numerous unsuccessful reforms. They are calling for new approaches to be taken and are calling for a system change: a state-organized pension product for everyone that is based on the Swedish fund.
Sweden as a role model
In Sweden there is a mandatory stock pension. Every employee pays into the state fund. Anyone who objects can find a private provider. “Hardly anyone does that,” says Werner Bareis from the Baden-Württemberg consumer advice center. “The private sector can’t even come close. What’s more, our costs in Sweden are 15 times lower than in Germany.”
Over the last 20 years, the Swedish fund has generated an average return of around eleven percent. “If Mr. Kegreiss had invested his money there, he would have received more than twice as much today,” according to Bareis’ calculation.
“Riestern” is becoming increasingly unpopular in Germany. Last year, German insurers recorded just 125,200 new insurance policies, a decrease of almost 60 percent compared to the previous year. In 2009 there were over a million new contracts.
“Voluntary insurance must not be mandatory”
While consumer advice centers see a structural problem – namely that these products are not always offered based on customer needs, but rather based on the amount of commission – a Bundestag expert commission wants to keep private provision in the hands of the financial industry.
“We are dealing with private, voluntary insurance, which should not be mandatory,” says Oskar Goecke, an actuary and member of the commission. “In addition, the know-how lies with the banks and insurance companies; the state’s participation belongs in the first pillar, the statutory pension.”
Private provision must be made simpler, more transparent and more flexible. The Commission’s proposals for better private provision are as follows: Investment options with higher risks, but also higher returns and better comparability of products.
Strengthen the statutory pension
Jutta Schmitz-Kießler, old-age security researcher at the University of Duisburg Essen, doesn’t think much of the plans. “Private pension provision will always remain patchy because it is voluntary, and it will remain expensive because there are actors on board who want to earn something from it.” It relies on strengthening the statutory pension insurance.
“In Germany we have done this for a long time. Collectively, i.e. with the participation of employees, employers and the welfare state. This alliance was terminated in 2001, but we could revitalize it and thus restore a better pension level,” says Schmitz-Kießler.
This is made possible, for example, if civil servants and the self-employed also pay into the pension fund, the contribution assessment limit falls, wages rise and, above all, the employment rate of women is promoted. There are currently 45 million people in employment in Germany, never before.