Last Updated on December 6, 2023
Riester pension (Riester-Rente) exists since 2002 and is named after the Minister of Labor Walter Riester. This is a voluntary additional pension insurance, which is supported by the state with bonuses. It is believed that Riester pension is beneficial for families with children, low-income earners and high-earning singles. However, due to the high cost of maintenance and low interest rates, this type of savings is not so popular, as the government would like.
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Table of Contents
- Who has the right to enter into a Riester pension agreement?
- How much do you need to pay
- Insurance forms
- Amount paid you in retirement
- How can I find out how much money I will save?
- Death of the insured
- Exit the Riester pension program
- Riester pension and old age poverty benefit (Grundsicherung)
- Riester pension and life abroad
- The future of the Riester pension
Who has the right to enter into a Riester pension agreement?
Anyone who is obliged to pay state pension insurance contributions can enter into an agreement.
Groups of those eligible:
- employees, Auszubildende (trainee), Bundesfreiwilligendienstleistende (Federal volunteers), students with a mini-job with mandatory payment of pension insurance (3.7 percent)
- obliged to pay pension insurance self-employed people (Selbstständige)
- Beamte (civil servant), soldiers, judges
- recipients of ALG I or II or Krankengeld
- partially or completely disabled
Those who are not on this list (for example, housewives) can also enter into an agreement if the partner is on the list. Another thing is that if a person doesn’t earn enough, then the pension will be tiny, there will be no miracles here.
The contract is concluded with Riester-Anbieter, and these are banks and insurance companies. All important information about insurance is provided in the form of a Produktinformationsblatt.
How much do you need to pay
The amount of contributions is determined by the insured himself. The minimum is 60 euros per year, that is, 5 euros per month. This amount is called Sockelbetrag.
However, in order to receive a bonus from the state, the insured must pay at least 4 percent of his income of the previous year (including Grundzulage and Kinderzulage, which are discussed below), but not more than 2,100 euros. This amount will be called Mindesteigenbetrag, and the right that you receive upon fulfilling this condition is called Anspruch auf Riester-Förderung.
If you pay only part of the Mindesteigenbetrag, then you will receive a partial bonus.
What is the state’s participation?
Every insured person entitled to a state bonus (one who has Anspruch auf Riester-Förderung) receives a so-called Grundzulage. From 2018 this amount is 175 euros per year.
For each child born before 2007 inclusive, 185 euros of Kinderzulage are added. For each child born after 2008, 300 euros of Kinderzulage are given per year.
Those who are under 25 years of age at the time of concluding the contract receive an additional 200 euros (Berufseinsteigerbonus).
State bonus must be requested on time! It is not awarded automatically. You can give Vollmacht (mandate) to your regulator for this.
Examples of calculating a monthly payment to obtain the right to a state bonus
1. A person receives 32,000 gross income per year and has no family. His monthly payment will be:
4% of income (1280 euros) – 175 euros (Grundzulage)
= 1105 euros per year : 12
= 93 euros per month.
2. A married person with 3 children and 75,000 gross income must pay per month:
,000 euros, 2,100 maximum) – 175 euros (Grundzulage) – 3*300 (900 euros, Kinderzulage)
= 1,025 euros per year : 12
= 86 euros per month
What additional payments to the management company can be made?
Before concluding a contract, look in the same Produktinformationsblatt sheet to see what the Vertriebs-, Abschluss- and Verwaltungskosten may be, that is, the cost of managing your insurance. And if the policyholder uses funds for your insurance, then Fondsverwaltungskosten may also appear there.
Payments to Riester pension are tax deductible. Namely – in the declaration as Sonderausgabe in the Anlage AV application in the amount of up to 2100 euros. This amount includes your contributions and the state bonus.
Whether your deductions will be taken into account depends on which option is more profitable for you: if the tax benefit from the deduction exceeds the bonus from the state, then the amount will be deducted. Thus, the tax deduction makes the Riester pension profitable for high-income earners, who have an annual contribution of 2,100 euros.
The classic option is Private Rentenversicherung mit Riester-Förderung. This is a regular private pension insurance, just with the bonus from the state.
Pros: it is completely safe and easy to calculate. The minimum income (garantierten Mindestverzinsung) is determined by law and is 2.5% (by 2024 it should increase to 4%). Further possible income (Überschussbeteiligungen) differs.
Cons. At the beginning of the insurance, Abschlusskosten is charged, which depends on the total amount accumulated. If your plans and earnings are unstable, you may lose money.
Pension payments for this type of insurance are standard monthly lifetime payments.
Pension funds allow you to earn a little more because they invest in stocks. At the same time, the guarantee of pension insurance is maintained.
Important. Insurance based on funds may have, in the form of additional conditions written in small letters, such an option for paying out the accumulated amount: you receive a minimum pension until age 85, and only then receive the normal amount. If, of course, you survive.
The savings fund divides your contributions into two parts. One, which guarantees a certain minimum pension in the future, goes to a savings account in the bank. The remaining part is invested.
This is a more flexible option than the others. You can even choose a management method where you decide how to invest your money. Savings funds do not limit the possibilities for investing money – these can be pension funds, real estate funds or stock exchanges.
This method is recommended for those who have more than 15 years left until retirement.
My humble opinion as a non-specialist: why put all your eggs in one basket and then wonder whether or not you will live to receive all the money you saved. The minimum Riester pension is separate, and earnings from funds and the stock exchange are separate, if you are lucky enough to have extra money.
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A conservative form that is practically no longer offered. Similar to a savings bank account. The percentages are not very large and depend on the current situation, that is, they are not fixed. Pros: minimal maintenance costs.
Eigenheimrente, or Wohn-Riester
An option for those who are planning to purchase a home. Plus, it is also a minus, depending on the situation – you use your pension before it comes due to pay for your own housing.
In this case, the state supplement is paid if the following criteria are met:
- the apartment / house is your property
- the property is located in Germany.
- the property is the place of primary residence and becomes so at the latest upon completion of the 67th year of life. Before this, housing can be rented out or sold with the receipt of the sale amount in the Riester agreement.
- after the start of the pension, the property is a place of permanent residence for 20 years. If it was sold, then another property must be purchased
- the property was purchased or built after 2007.
The reconstruction of existing housing or the right to live in a nursing home is also supported.
The entire amount of Riester pension accumulated at the beginning of the pension can be used to pay off the real estate debt.
The income you receive to use to pay off your loan is taxable. To do this, a fictitious Wohnförderkonto is created on which your investments and allowances are recorded. it will be taxed when you retire at the rate you receive on your pension earnings. You can pay the tax in full with a deduction of a third of the amount, or pay it until age 85 without deducting a third of the amount, but in small portions.
Your organization may offer this option. Whether it is profitable needs to be studied very carefully. In this option, not only taxes, but also social contributions fall on Riester pension. Perhaps a separate private Riester rental will be more profitable for you.
Amount paid you in retirement
Unfortunately, monthly pension payments can hardly be calculated in advance, as they depend on several factors. You need to find out about the management company’s proposals in advance. Better in 2 years, and with Riester-Banksparplänen – in 5 years. Because if something doesn’t suit you, then changing Riester company can be difficult or impossible. Other companies simply won’t take you; they have a common information base. Particular problems arise for those who have a waiting period of up to 85 years.
Pension payments begin to be received from the age of 62 at the earliest, but usually from the moment of retirement, that is, from the age of 67. If you want to receive it earlier, then
- first, save less,
- secondly, the accumulated amount will be divided by a larger number of expected years of life. That is, the monthly pension will be significantly lower.
30 percent of the amount saved can be received immediately (Sofortrente), the rest as a monthly payment. If the amount is small, you can get it all at once. “Small” means you were calculated about 30 euros per month or less.
However, it must be taken into account that Riester pension, like ordinary pension, is subject to taxes as a general rule. That is, depending on the amount of income, deduction of a non-taxable amount and other deductions. A one-time payment, at the request of the insured, can be postponed for a year so that the last salary does not fall into the amount of taxes.
What affects the monthly pension payment:
- how much was invested
- amount added by state
- how much has been accumulated in funds
- how do you protect heirs
- how many years are you going to receive an additional pension
Important information for calculations in funds – Rentenfaktor. The latter refers to how much guaranteed money you will receive for every 10,000 euros accumulated. And this factor varies from 15 to 30 euros per 10,000! That is, your pension with 30,000 capital may look like 45 euros per month, or maybe 90 euros per month. It is calculated that with a factor of 15 euros per month, the return of the accumulated amount reaches 50 years.
Based on the examples of monthly payments I have met (gross income before deductions, annuity for a partner for 10 years):
- 50,000 euros accumulated – up to 180 euros monthly pension payments
- 100,000 euros accumulated – up to 360 euros monthly pension payments
We get that they expect you to live somewhere up to 90 years.
If you decide to get Sofortrente 30 percent right away, then in the first case the monthly payment will be reduced to 120 euros, and in the second to 250.
Don’t forget about the tricks written in the fine print in the contract. Like the pension deferred until age 85, which was mentioned above.
Taxes will still be charged on this amount – 20-41 percent, according to the scale, depending on the amount of your total income (state pension plus Riester and other income). However, let’s not forget that you also have the right to deductions.
How can I find out how much money I will save?
There are different calculators for this. I found a more or less detailed one here. There you need to carefully read all the points and choose the appropriate option. But in any case, you need to understand that you will not get a 100 percent guarantee.
Features of funds
Don’t forget that there are still unobvious expenses for the services of a management company.
The so-called Honorartarife may be more profitable, when at the beginning up to 1200 euros are paid “for a consultation”, and in return they offer a more favorable tariff for services.
Thus, we look not only at the proposed income as a percentage (Rendite – typically 4-5%), but also at its reduction for maintenance (Effektivkosten) and other reasons (for example, providing for heirs). If Rendite decreases by less than 1 percent, this is an excellent result. Often this can be minus 1.5 percent, or it can go up to minus 3 percent.
You should also be aware that during crises, the management company gets rid of promising but risky packages in favor of reliable ones. Since it is obliged to guarantee payments to you.
Death of the insured
There is a difference here:
whether death came before or after retirement
and whether the partners were married.
Before retirement + married
In this case, the money is transferred to the partner’s Riester account. If (s)he does not have an account, (s)he must open one within 12 months.
The second possibility is to sell the Riester account. However, this will come at a cost. Because the state takes back its bonus and tax deductions, if there were any.
The same is true for Riester pension with buying a home: it is either inherited with transfer Riester agreement to the heir, or sold with the loss of bonus and taxes.
Before retirement + not married
If there is no marriage partner, but there are children, then the money can be transferred to them for the so-called orphan’s pension – Waisenrente. As long as the child is eligible for Kindergeld, the child will receive the parent’s supplement. For example, a child is entitled to Kindergeld for another 5 years. This means that the remaining amount will be divided over 60 months and they will pay him an appropriate pension.
If the child has already grown, (s)he must pay the corresponding state bonus and tax deductions back to the state.
Afrer retirement + married
At the time of conclusion of the contract, the Rentengarantiezeit or Restkapitalabfindung is usually determined.
Typical Rentengarantiezeit is 10 years. This means that if the insured dies within 10 years of the commencement of the pension, the surviving partner will receive the same pension for the remainder of the period. If the Rentengarantiezeit has expired, then partner recieve no money.
Restkapitalabfindung assumes that the remaining capital will be recalculated taking into account the age of the remaining partner and her / his life expectancy. And the corresponding lifetime pension will be paid.
After retirement + not married
If no pension has been agreed upon for the remaining partner, there are no children and there is no heir under the will who could receive the money after returning state bonus and tax deductions, then the money goes to “public use”, whatever that means.
Exit the Riester pension program
If you leave the program (Kündigung), in other words, sell your rent, then the state punishes you for this. Because you used the program in an inappropriate manner.
You will receive your contributions, but will not receive a state bonus. And you will return to the state everything you saved on taxes. In addition, you will pay the company handling your account.
Those who have chosen funds as a Riester pension option will also receive what they earn from the fund. But most likely they will pay tax on this amount.
Instead of an expensive full exit, it is recommended to suspend payments (Riester ruhen lassen) or consider changing the management company. The change will cost you up to 150 euros, and the new company will calculate its service based on half of your accumulated amount.
Riester pension and old age poverty benefit (Grundsicherung)
Previously, your entire Riester annuity was included in the benefit calculation (that is, the benefit amount was reduced as you received the Riester pension). Then they decided that it was dishonest, there was no point in saving. Therefore, now a certain amount according to a special calculation is left to you ((amount – 100 euros) / 30 percent, but not more than 202 euros) .
Riester pension and life abroad
If you live in non-EU countries, all additional state bonus and tax deductions are deducted from your rent.
The future of the Riester pension
Riester pension, on the one hand, is a relative popular pension option. Because voluntary additional payments to the pension are not at all profitable, and Riester pension gives bonuses and therefore looks more attractive. On the other hand, many are disappointed: it is not transparent, has hidden “traps” that reduce the already not very large amounts. In addition, the inheritance of accumulated wealth is limited, and many people think about how to provide for the remaining family.
The reform of the Riester pension is recognized as overdue, and it is even more or less clear in which direction to reform: greater transparency, the ability to choose riskier investments with the potential for greater earnings. They haven’t figured out how to implement this yet. However, they intend to come up with it
before 2021, before 2023, someday.
Among the offers:
- remove the difference in the child bonus depending on the year of birth
- guarantee not the full payment of the invested funds, but only a certain percentage, which will make it possible to make more risky investments
- increase the tax deduction limit
- make the offer standard to reduce the cost of service by management companies
Other finance topic – #finance