Does a Riester pension really make sense? With all the different media reports, TV talk rounds and opinions from the last regulars’ table, nobody really looks through it anymore. That’s why we’re going to focus on just one thing in this article: THE FACTS. What are the facts about “Riester pension makes sense or not?” At the end of the article you will know exactly for what reasons and under what conditions a Riester pension can really be worthwhile and when not.
- Basic functionality of a Riester pension
- Allowances and tax benefits
- The most important criteria for a Riester pension
- Too many bad Riester pensions
- Is Riester worth it for you?
- Find the best Riester pension
1. Basic functionality of a Riester pension
Before we go into the most important criteria of a good Riester pension, here are the Riester basics again.
The most important features of a Riester pension
The Riester pension is a certified retirement plan in the second tier. In the second layer of the pension system in Germany are the products that are subsidized by the state. Among other things, the Riester pension.
A Riester pension works similarly to a normal private pension insurance in the third shift. However, with some special features:
- Allowances and tax advantages for Riester savers (more on that later)
- lifelong annuity payment
- a maximum of 30% as a lump-sum payment possible upon retirement
- Possibility of residing
- A product information sheet must be enclosed with every offer for a quick overview of the most important points
- Non-subsidy payment is only possible if you later reside as a pensioner within the EU
These are the most important cornerstones of the Riester pension as a product
Who can take out a Riester pension?
Not everyone can take out a Riester pension. The group of people eligible for funding is divided into direct beneficiaries, indirect beneficiaries and non-direct beneficiaries
Directly beneficiary group of people
- Employees who are compulsorily insured in the statutory pension insurance
- Recipients of unemployment benefit I
- Child care workers
- Compulsorily insured according to the law on old-age insurance for farmers
- Civil servants, judges and professional soldiers and persons treated as such (under certain conditions)
- Recipient of a pension due to total disability / incapacity or a pension due to incapacity
Indirectly beneficiary group
If a spouse or partner is directly beneficiary, the other spouse or partner is also (indirectly) benefiting, provided that
- both spouses or partners do not live permanently apart
- both spouses or life partners are resident in the EU
The indirectly beneficiary spouse or partner is only entitled to their own Riester pension with corresponding support if the directly beneficiary spouse or partner has taken out their own Riester pension.
Not indirectly beneficiaries
- Compulsorily insured persons with a professional pension scheme, provided that they are exempted from compulsory insurance in the national statutory pension scheme
- Persons voluntarily insured in the national statutory pension insurance
2. Allowances and tax benefits
As already mentioned, one of the great advantages of the Riester pension is the support that you receive from the state. This can be done through allowances that flow directly into the contract or through tax refunds, since the contributions to the Riester pension can be deducted as special expenses. The tax office always automatically decides which type of funding makes the most sense for the Riester saver. This is determined every year via the so-called cheaper test. The maximum deductible is € 2,100 per year including the allowances received.
Amount of allowances
- from 01/01/2018: € 175 personal allowance
- 185 € allowance for children born before 01.01.2008
- 300 € allowance for children born after January 1st, 2008
- € 200 one-time training allowance for people under 25 years of age
3. The most important criteria for a Riester pension
Now we come to the features that ultimately decide whether your Riester pension is worthwhile for you or not. The following criteria determine whether your Riester pension makes sense in the end or not. One thing in advance: Most of the almost 16 million Riester contracts are NOT SENSIBLE. But not because a Riester pension does not make sense per se, but because the important criteria of a Riester pension are simply not met in most contracts.
The pension factor of your Riester pension
The pension factor in your Riester pension is almost THE decisive factor when it comes to how high your monthly pension will be later. It is incredibly important that the pension factor in your Riester pension is 100% guaranteed! And that is not the case with most Riester pensions.
Subsequent lowering of the pension factor by the insurer
There have already been too many cases in recent years in which the insurer simply unilaterally lowered the pension factor. But what exactly does that mean for you and your Riester pension?
To do this, you need to know what the pension factor is and how the future monthly pension is calculated from this.
You are welcome to watch the following video from me.
A pension factor is always given for every € 10,000 saved capital. For example, it could be in your Riester contract as follows:
“We guarantee a pension factor of 25 per 10,000 €”
This means that for every € 10,000 in your contract, you get € 25.05 in pension. If you later have 100,000 € capital in your Riester pension, in this example you would come to a monthly pension of 10 x 25 = 250 €
If the pension factor decreases, your pension decreases
If your pension factor is now reduced, your monthly pension will automatically decrease. And since Riester is concerned with monthly pension payments, the pension factor is simply decisive for the war!
It must be as high as possible and 100% guaranteed!
The equity allocation of the plant
What about the equity quota of your Riester pension? Most likely you don’t know or read about it for the first time.
This is the all-important factor when it comes to whether your Riester pension can really generate real returns or not.
Spoiler alert: Most Riester pensions have no or only a negligible share quota, thus generating no return on your retirement provision and are simply bad Riester pensions.
Excursus: Riester fund savings plans and why these are not recommended
You may have a Riester fund savings plan through DWS or Union Investment, for example. You actually have a high equity quota here. But do you know what you don’t have? A guaranteed pension factor! You have no pension factor at all with contracts of this kind! This is namely only determined shortly before the start of retirement with an insurer selected later.
Play the lottery with your pension
Or in other words: This is the Riester pension lottery! If you don’t know today what your guaranteed pension factor is, then you do not actually know how high your monthly pension will be later. And that is maximum uncertainty!
And if you take a look at the calculation bases on which a pension factor is calculated, you will quickly see that the so-called mortality tables of the German Actuarial Association play a decisive role here.
Secure a guaranteed and high pension factor today
In simple words: the longer you will probably live statistically, the lower your pension factor will be, because statistically speaking the longer the insurer has to pay your pension. Sounds logical right?
And since we are all getting older and older, today’s pension factor is extremely likely to be a lot higher than a pension factor that will only be calculated in 30-40 years.
Conclusion: If you have a Riester fund savings plan, you should definitely switch to an insurer that guarantees you a very good pension factor today. You will find out how you can change your Riester pension and why a change also makes sense in other cases here.
Few insurers let themselves be looked at in the numbers
As far as the share quota of a Riester pension with an insurer is concerned, very few insurers can look into their cards here. The answer as to why this is so is obvious: Most insurers simply cannot offer a high equity quota and thus no good potential returns. But of course you don’t want to shout that out.
We looked at stochastic evaluations of the share quotas of insurers at Riester pensions and were then able to filter out the top Riester pensions providers from these – in addition to the other important criteria – and only offer these to our customers.
So if you are still looking for the right Riester pension for you, you are welcome to use our free online advice.
Your Riester’s Cost
Now we come to the cost of your Riester. Of course, costs are an important criterion. If your contract causes too high costs, this reduces the return and in the end you have less pension available.
BUT: Costs should never be the driving criterion for you in a Riester pension!
Why: Imagine that you have the cheapest Riester contract ever, but neither a good pension factor, nor a high share quota and you are not with a financially strong, large insurer (more on this in a moment). Then you can also kick this Riester pension directly into the bin. Low cost or not. First, the criteria such as the pension factor and equity quota have to fit. Then you look at the costs.
Dacia or Mercedes?
The example with these two car brands fits perfectly. Do you want a Dacia-Riester pension or a Mercedes-Riester pension? Quality provider or 0815 provider?
You also know the saying ” If you buy cheap, you buy twice. “
Only with the small problem that with a Riester pension it is not so easy to simply buy it again. By then you will have already lost some of your later retirement.
Pay attention to costs, but do not make a decision based on costs
Because of that : The cost is important, yes. But they are not the most important. Especially not if you choose a provider who has a really high equity quota and can make a decent return. Then a Riester pension like this can also cost a little more – because the bottom line is that it gets a lot more out of you than it costs. We are slowly approaching the final answer to the question “Riester pension makes sense or not”.
The financial strength of the insurer
I can deal with the last criterion relatively quickly. But that doesn’t mean that it should be neglected. On the contrary: All of the points mentioned above will bring you relatively little if your coal is with a provider who is not financially strong and may no longer exist in 30-50 years.
If you are now in your early 20s, are going to pay in for about 40 years and then want to receive a pension for another 30 years, then we are talking about a period of 70+ years. That’s a hell of a long time.
Would you like to leave your money to a start-up that has only been around for a few years? Or maybe an insurer that has been around for 100 years, has survived several financial crises and the probability is high that the shop will still be around in another 100 years?
You can probably tell yourself the answer.
So make sure that you put your money with a large, financially strong insurer.
4. Too many bad Riester pensions
Now that you have learned the important criteria for a Riester pension, I can tell you that very few of the approximately 18 million Riester contracts in Germany meet these criteria.
On the one hand, this is due to the fact that insurers do not take great care of these points (some insurers no longer focus on Riester and general old-age provision and products are discontinued or no longer developed) and, on the other hand, because Riester products are not being developed in general have evolved a lot since their introduction.
This is precisely why Riester contracts that have been in place for 5-10 years are often really bad. Simply because there was nothing better back then.
By the way, you can get your Riester pension have it checked here for free .
5. Is Riester worth it for you?
Now we come to the all-important question: Is Riester worth it?
It was very important to me that you first understand how a Riester pension works and which points you have to pay attention to.
If all of these points are really met, then my answer to the question would be “Is Riester worth it” definitely YES, RIESTER WORTH IT.
Is Riester worth it, however, is the wrong question
At the same time I have to write that this is simply the wrong question. Nobody can actually give an answer to this question.
This would only be possible if you knew exactly when you were going to die. And we could then work out how much you will have paid in total, how much return there was and how long the pension was paid to you.
But that’s just not possible.
Nor can one answer the question of whether the statutory pension is worthwhile, whether occupational disability insurance is worthwhile, etc.
So what would be the right question?
The right question would be does the Riester pension make sense as a supplement to my retirement provision?
And here you can clearly say: Yes, it is!
It was not without reason that Riester was designed in such a way that it closely resembles the statutory pension scheme
- there is a lifelong pension
- the capital can only be retired (leaving out the 30% that can be paid out all at once)
- there are clear rules how the amount of the monthly pension is determined (pension points and pension factor)
- there is a certain guarantee (at least the paid contributions and allowances) that you can count on
And that is exactly what Riester is: A supplement to the statutory pension. Riester aims to close the gap that statutory pension insurance leaves open because the system itself no longer works 100%.
The Riester pension was not created as a high-end performance product. If you had done that, everyone would have complained that there were no guarantees.
That the Riester pension is as it is makes perfect sense
If Riester hadn’t been built as a lifelong pension, but as a pure capital investment where there are still bonuses on top, then people would have complained again that the risk of longevity is not covered.
So you can see that it all makes sense somewhere. And all the regulars’ slogans and absolutely badly researched articles in the media just unsettle people. And untruths are simply spread.
6. Find the best Riester pension
How do you find the best Riester pension for yourself?
By talking to a professional for Riester pensions and getting advice. The product itself is simply very complex. In many cases you will not find the pension factor in the offer and if you do, it is not guaranteed. No offer tells you how high the equity quota actually is.
That’s exactly why you have to get a Riester expert here.
And if you have the feeling that we are one of the Riester experts here (we run Germany largest YouTube channel for independent insurance knowledge), then you are welcome to see whether we are up to date Have appointments free for our free online pension advice .
Our advice is really completely free for you. Just like our free Riester check if you already have an existing Riester pension and are not sure whether the contract is good or bad.