Riester pension basics, tips and comparison

The state supports savers who take out a Riester pension by means of a basic allowance, a child allowance and, where applicable. through tax advantages.

In order for the allowances to be paid out in full, the owner of the Riester pension contract must pay in a fixed proportion of his or her previous year's income subject to social insurance contributions as a savings amount each year. The amount to be saved is currently 4%. From the start of the pension, the saver receives a lifelong monthly pension paid out in case of. The exact amount of the regular pension payments depends in particular on the contributions paid in, the chosen form of investment and the amount of the state allowances.

Under the "Wohn-Riester" program, the subsidized capital can be used in whole or in part for the construction or purchase of real estate and for loan repayments. Prerequisite is that the residential property is used by the owner himself. With the exception of a 30% one-time payment upon retirement, the capital once paid in can only be withdrawn prematurely if the state subsidy is largely repaid.

Since its introduction in 2002, more than 15 million Riester pension contracts have been concluded in a wide range of investment variants.

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Who receives a Riester pension subsidy?

The state has defined in the law the group of persons entitled to the allowance. The target group is primarily salaried employees, as they must reckon with further decreasing claims from the statutory pension insurance. Under certain conditions, however, z. B. Self-employed persons or housewives take out a subsidized Riester pension contract.

The group of persons entitled to the allowance:

All persons who are subject to compulsory insurance under the statutory pension insurance scheme are eligible for the allowance. The unrestricted tax liability in Germany required until 2009 is no longer a prerequisite. Cross-border commuters who live abroad but are subject to compulsory pension insurance in Germany can also receive a subsidy. [1]

This includes in detail

• Employees subject to pension insurance
• persons doing military or civilian service
• Persons receiving unemployment benefit I
• Persons on parental leave (up to 3. age of the child)
• Self-employed persons insured under the artists' social insurance scheme and other compulsorily insured self-employed persons
• Public sector employees and civil servants
• Persons with a full reduction in earning capacity or. full invalidity
• Persons who are voluntarily insured under the statutory pension insurance scheme
• Low-income employees (exception: waiver of exemption from insurance and top-up to the full pension insurance contribution by the employee)

Not directly entitled to a Riester pension subsidy:

• Self-employed persons without compulsory insurance in the statutory pension scheme
• Students (provided they are not subject to pension insurance)
• Pensioners ("normal old-age pension")
• Persons with a pension due to partial reduction in earning capacity (without employment subject to pension insurance)
• Individuals who are compulsorily insured in an occupational pension scheme (e.B. doctors, lawyers, pharmacists)

No direct eligibility?

Tip: A direct eligibility for subsidies already exists if the requirements for the group of persons eligible for subsidies have existed for at least a single day in the corresponding year!

All persons with a spouse who is entitled to a Riester subsidy can also take out a Riester pension. This is referred to as an indirect or. Indirect eligibility. Detailed information can be found in the section: "indirect eligibility". It would be possible, for example, for the wife of a self-employed person to take a temporary job with the latter that is subject to social insurance contributions, which would entitle her to a Riester pension subsidy. The self-employed person can then also receive a Riester pension as a spouse.

Indirect eligibility also applied to registered civil partnerships (BVerfG ruling 7.5.2013). With the introduction of same-sex marriage ("homosexual marriage") on 1. October 2017 corresponding spouses have the same rights as all married couples anyway.

Are you not sure whether you belong to the group of persons entitled to the allowance, or do you have further questions? Then simply request a free consultation on our site. The legal basis with all details can also be found in the Income Tax Act §10a.

How does the state Riester subsidy work?

Private old-age provision is subsidized in two ways under the Riester pension: First and foremost, savers benefit from state allowances. In addition, the contributions made can be claimed as special expenses and thus bring tax benefits. The amount of the subsidy depends on the personal situation.

The state allowance subsidy:

In order to receive the full allowance, at least 4% of the gross income subject to social insurance contributions in the previous year must be invested in the Riester pension contract. If less money is paid in, you also receive the allowance only proportionally. The maximum subsidized amount is limited to 2.100 € / year limited.

However, the saver only has to pay the difference between the state allowances and the minimum contribution required based on his or her income. Regardless of income, however, investors must pay in at least the "basic amount" of €60 per year themselves – even if a lower personal contribution would result after deduction of the allowance.

1. Amount of the old-age provision allowance:

• For children born up to and including 31.12.For children born in 2007, the allowance is €185, for children born since 2008 even €300.
• For married couples: Each spouse must conclude a separate Riester contract.

Example calculation Riester subsidy (2008+):

• A married couple with two children born after 2007; only the husband is employed; income 30.000 euros per year.
• The couple has therefore a total savings of 1200 euros this year (= 4% of 30.000 €).
• Of this, the couple only has to actually pay in 292 euros themselves.*
• The couple receives €908 as an allowance subsidy! (2 x € 154 basic allowance + 2 × € 300 child allowance).
• This corresponds to a subsidy rate of approx. 76%.

* 60 euros of which is paid by the spouse who is only indirectly eligible since 2012 (required basic amount). The increased personal contribution increases the special expenses deduction by these 60 euros (if applicable. of importance for any tax reductions).

2. Tax benefits through the special expenses deduction:

The pension contributions made, including allowances, can be deducted up to the maximum contribution of 2.100 euros can be claimed as special expenses. If the resulting tax savings are higher than the state allowance, the difference is refunded as part of the income tax ("Gunstigerprufung"). For married couples with only one working spouse and/or one or more children, tax effects generally do not play a role.

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Which Riester pension investment forms are there??

In detail, there are these different Riester pension investment variants:

• Unit-linked Riester pension
• Riester fund savings plan
• Riester bank savings plan
• Classic Riester pension insurance
• Residential Riester

All variants have their advantages and disadvantages. Which option is best for you depends largely on your personal situation and how high your risk tolerance is. However, it is not only the selection of the appropriate Riester pension variant that is decisive. There are large differences between the offers of the individual providers.

Request a personal consultation, learn the details of each investment type: The different Riester investment forms. Or get an overview of the best Riester pension providers & Riester test winners per product.

What are the advantages of the Riester pension??

Two decisive advantages distinguish the Riester pension: the sometimes very high subsidy rates and the high degree of security offered by the state-subsidized old-age provision, so that in many cases the disadvantages of the Riester pension are significantly outweighed. In addition, you can use your Riester assets to finance owner-occupied housing, which can make the path to home ownership a whole lot easier.

Depending on the personal income and life situation, the state allowances within the framework of the Riester pension reach a high to very high proportion of the total savings sum. For example, some savers receive more than 70% of the savings amount as a state Riester subsidy. The respective provider then invests the money paid in according to the chosen form of investment (e.g., a pension plan).B. Riester funds) are invested profitably until retirement or. it earns interest.

In order to be designated as a Riester pension and to be subsidized via the old-age provision allowance, the pension products of the individual insurance providers must also meet certain government-defined requirements. These certification criteria make the Riester pension particularly secure.

This makes the Riester pension a secure retirement provision:

• Each provider is obliged to guarantee the availability of the entire amounts paid in, including all state allowances, as a monthly minimum pension for the insured person at the start of the pension.
• Your Riester account cannot be seized.
• The accumulated pension assets are not taken into account in the means test for unemployment benefit II – your Riester pension is therefore Hartz IV-proof.

Since 2008, it has also been possible under the German Home Ownership Pension Act ("Wohn-Riester") to use the accumulated, subsidized Riester assets to purchase owner-occupied residential property. Either part of the capital (up to 75%) or all of the saved assets can be withdrawn for the immediate construction or purchase of a property. Alternatively, it is possible to use the Riester pension to repay real estate loans upon retirement. The prerequisite in both cases is:

Since 2013, the provisions of the "Wohn-Riester" have been even more attractive. Among other things, policyholders can now withdraw assets from their private pension at any time to finance owner-occupied property and benefit from lower taxation.

What are the disadvantages of the Riester pension??

Even if the advantages of the Riester pension outweigh the disadvantages for almost everyone eligible for support, there are some conditions to consider – as with any old-age provision – before you decide to take out a policy.

Here's what you should consider:

• there is no uniform regulation as to what happens in the event of the death of the insured person after the pension has started. Spouses and other surviving dependents only inherit something if the investment model permits it or. it has been contractually stipulated (in this case, it is advisable to agree on a pension guarantee period).
• The Riester pension is taxed in the payout phase, not in the savings phase ("downstream taxation"). As a rule, however, the income tax rate at retirement age (due to the lower income) is lower than the tax rate during employment.
• An annuity payment before reaching the age of 62. The Riester pension must be paid out before the age of 60 (for contracts concluded before 2012). It is not possible to retire before the age of 60.
• Pension payments – like almost all other income in old age – are counted toward basic income support: If a Riester saver is dependent on basic state security in old age, this is therefore reduced by the amount of the Riester pension saved (affects people with very low other reserves and pension entitlements).

You should also be aware that the allowance portion and, if applicable. the granted tax benefits must be paid back if a so-called harmful use exists. However, the Riester saver keeps the personal contribution, as well as the (compound) interest income attributable to the subsidized portion. The latter must be taxed as normal.