BERLIN (dpa-AFX) - Starting in January, new options for private, state-subsidized retirement planning are set to be introduced. The Bundestag has passed legislation in Berlin to replace the increasingly unpopular Riester pension. The governing coalition of the Union and SPD stated that the new products are more cost-effective, flexible, and, above all, offer higher return potential. However, critics warn of inherent risks.
The government's objectives
The primary goal is to encourage more individuals to set aside private funds for retirement. The statutory pension system is facing structural challenges: the number of contributors is declining while the number of retirees is growing and their life expectancy is increasing. Consequently, private provision is becoming essential to maintain one's standard of living in old age. Finance Minister Lars Klingbeil (SPD) emphasized that private retirement planning is now worthwhile even for those with limited disposable income. "Even 10 euros a month is a worthwhile investment."
Available savings variants
The core of the reform is the departure from mandatory contribution guarantees. While safety-oriented savers can still opt for products with a 100 percent capital guarantee, new options include a variant with an 80 percent guarantee and a retirement savings depot without guarantees, promising higher returns on the capital markets. This provides greater freedom of choice for savers willing to accept higher risks in exchange for potential profits.
A new standard depot offered by a public entity is also planned. The rationale is that this depot should offer favorable terms, thereby pressuring private financial institutions to follow suit. The financial industry has expressed reservations, arguing that the state is becoming an active participant in a market where it also sets the rules, acting simultaneously as regulator, referee, and competitor. The AfD voiced similar concerns.
In contrast, the Greens particularly praised the coalition's decision, having previously advocated for a public depot. However, they had proposed an "opt-out" model where all citizens would contribute automatically unless they actively chose not to. The coalition's model relies on active participation, which the opposition critics argue will fail to reach many people.
Cost implications
Under the old Riester system, high commission and administrative costs significantly eroded returns. In the new system, a cost cap of one percent of effective costs will apply, at least for standard products. Banks and insurers may still offer more expensive products, for instance, those involving face-to-face advisory services, but savers will at least have alternatives.
Critics, however, argue that even this one percent cap is too high. While an improvement over many Riester contracts, "when you calculate the compound interest effect, it remains too high and could cost consumers tens of thousands of euros," Dorothea Mohn, financial market expert at the Federation of German Consumer Organizations, told broadcaster Bayern 2.
State subsidies
For annual savings up to 360 euros - or 30 euros per month - the state provides a 50-cent subsidy for every euro invested. For savings between 360 and 1,800 euros, each private euro is topped up by 25 cents from the state. This allows for a maximum basic allowance of 540 euros per year.
Additionally, families receive a child allowance: with a monthly savings contribution of at least 25 euros, the full child allowance of 300 euros per child per year can be claimed.
Eligibility for allowances
In a departure from previous rules, all self-employed individuals will now be eligible to contribute to state-subsidized retirement plans. The coalition justified this by noting that many self-employed people face precarious financial situations in old age.
The Left Party (Die Linke) fears that the poorest will not benefit from the new system. "Those who can barely make ends meet today cannot risk gambling their hard-earned money on the stock markets," emphasized MP Isabelle Vandre. She argued that the Union and SPD are subsidizing expensive and risky private pensions with billions instead of strengthening the statutory pension system.
Options for existing Riester contract holders
Holders of existing Riester contracts can choose to keep their current contracts unchanged, modify them, or switch entirely to the new model. Grandfathering provisions apply to all existing contracts.
However, switching to a new model is possible without having to repay previous subsidies. Savers can decide whether to contribute to a product with or without guarantees in the future. Nevertheless, switching, closing, and distribution costs may apply.
Switching between different retirement contracts is intended to become generally easier. To facilitate this, closing and distribution costs are to be spread over the entire term of the contract. Previously, these were charged upfront, meaning a switch often resulted in paying the full amount again. Furthermore, providers will only be permitted to charge a switching fee within the first five years of the contract./tam/DP/zb
