All information from AZ (2020)

The Riester pension was introduced as a state-sponsored pension scheme to close or narrow the gap in statutory pension insurance. Thanks to state allowances and tax advantages, the Riester pension is a useful addition to old-age provision for many people. 16 million people currently have a Riester pension in Germany. In this expert article, you will find out exactly how the Riester pension works, what allowances and tax advantages there are and what you should definitely pay attention to when choosing a provider.

Riester Rente 1024x560 - Riester pension

How does the Riester pension work?

In 2002, the Riester pension was introduced as part of the reform of the statutory pension insurance. The reason for this was the growing pension gap. Currently (2020) we have a pension level of just 45% in Germany. As low as in almost no other country in the EU.

The state-sponsored Riester pension is now intended to close this pension gap, or at least part of it. So that this becomes easier for the Riester saver, or he does not have to raise so much capital himself to close the pension gap, the state gives allowances and tax advantages.

For low-wage earners and families with children, the government allowances are particularly interesting, and for higher-income earners, the tax advantage is usually very interesting. But more on that later.

Lifetime annuity payments

Like the statutory pension, the Riester pension is paid for life. This is important because nobody knows how long you will live. This safeguards the longevity risk.

At the start of retirement you can have 30% of the Riester capital paid out once. The rest must be paid out as a pension.

Paid contributions and allowances guaranteed

Furthermore, the insurer must guarantee you at least the premiums paid and the allowances received at the start of retirement. For you, this means that you will definitely have the “return” from the annual allowances in your contract. There is currently no other product like this.

How high are the allowances / tax advantages?

As already mentioned at the beginning, the great benefit of the Riester pension is the allowances that the state gives. Then there is the tax deductibility of the contributions. Depending on the individual situation, one or the other makes more sense to you. This is checked every year in the background by the so-called Cheaper check . This is where the allowance office, tax office and insurer communicate with each other. This will determine whether tax benefits or allowances are the most favorable for you.

Automate allowances with a permanent allowance application

The allowances must be requested from the allowance office every year. This is simplified by a permanent allowance application, through which your insurer can then automatically apply for the allowances for you every year. For the sake of simplicity, this should be completed when submitting the application.

What allowances are there?

The following allowances are available per year:

  • Basic allowance: 175 €
  • Child allowance for children born before January 1st, 2008: 185 €
  • Child allowance for children born after 01/01/2008: € 300
  • One-time career starter bonus for people in training: € 200 (if under 25 at the time of graduation)

The full allowances are only available if the corresponding contribution is paid. You will find out how this is calculated individually in the next section.

What about the tax break?

In addition to the allowances, the contributions to the Riester pension can also be claimed via the tax return in Appendix AV. Up to a maximum of € 2,100 per year. If the resulting tax advantage exceeds the amount of the allowances, the tax office will recognize the difference as a tax refund.

Riester pension – apply for a permanent allowance! ( to the YouTube channel )

The Riester pension delivers good returns and is more widespread than other forms of provision.

Institute for Pension Provision and Financial Planning

How is the contribution calculated?

There are clear guidelines on how your individual Riester contribution is calculated if you want to receive the maximum allowances. This should always be the goal, because this is the only way you can really use the state funding 100%.

4% of the previous year’s gross income for maximum allowance

You have to pay exactly 4% of your gross income (minus the allowances) from the previous year as a contribution to your Riester pension so that you receive the full allowances.

Most of the Riester contracts are unfortunately not “bonus-optimized” because people forget to adjust the contribution regularly if the income has changed. If you already have a Riester pension, I recommend at this point that you definitely check whether your contribution is really bonus-optimized.

Tax-optimized contribution

For high earners, the tax advantage is usually more worthwhile than the allowances. Since the maximum contribution to the Riester pension is € 2,100 (minus the allowance), the tax-optimized contribution for a single without children would be € 160.42 per month.

€ 2,100 – € 175 (basic allowance) = € 1,925

€ 1,925 / 12 months = € 160.42 monthly fee

Minimum contribution (base contribution)

There is also a so-called basic contribution that you have to pay in at least. This is € 60 a year or € 5 a month. For example, if you have only a very low income, it is possible that your contribution to be paid (minus allowances) would be € 0. Nevertheless, at least € 60 per year must always be paid.

Riester pension – calculate contribution

Riester pension – simply calculate the contribution yourself

Who can conclude a funded contract?

Not everyone can take out a Riester pension. There are directly (directly) funded groups of people, indirectly (indirectly) funded groups of people and those not funded. These are then all groups of people who are not covered by the first two groups of people.

The following are directly eligible for funding:

  • Employees (including trainees), federal volunteers, and students with a mini-job that is subject to pension insurance
  • Self-employed with compulsory insurance
  • Officials, judges and soldiers
  • Recipients of unemployment benefit I or II or sickness benefit
  • Disabled, disabled and disabled people

The following are indirectly eligible for funding:

  • Spouses of people who are directly eligible for funding (e.g. as a housewife / housewife you could still take out a Riester pension if your husband / wife belongs to the group of people who are directly eligible and also has a Riester pension himself)

Is a contract worth it for you?

Even if the opinions on this in the media and talk shows often differ, a Riester pension is actually worthwhile for the vast majority of people. Provided that you have also taken out a good Riester pension and have observed the most important points. We will go into which these are below.

Lots of bad contracts

However, most people have rather bad Riester contracts with unnecessarily high costs and hardly any chance of return. Then of course something like this cannot be worthwhile. Regardless of whether Riester pension or another type of pension insurance. At this point we recommend ours free RiesterCheck . Here we check your existing Riester pension and let you know whether you have a good contract or whether you should optimize your Riester pension.

Allowances and tax breaks are worth it

However, if you have done everything right with your Riester pension and you also pay the optimal contribution (bonus-optimized or tax-optimized), then the Riester pension is definitely worthwhile for you.

Why should a product that generates an annual guaranteed return through bonuses (especially in times of low interest rates) and later pays you a lifelong annuity not be worthwhile? In addition, at the start of retirement you must be guaranteed at least the contributions you have paid plus the allowances!

Of course, it wasn’t worth it if you were to die at the age of 62. But unfortunately you do not know when you will die. And so the Riester pension is an absolutely sensible addition to your retirement provision.

What is the taxation like in the retirement phase?

The Riester pension is subject to what is known as downstream taxation. This means that you have to tax the payments from the Riester pension (from the age of 60 at the earliest) at your later personal tax rate. As with most old-age provision products, the tax is not due until later.

Lower tax rate than retirees

The big advantage, however, is that your tax rate as a pensioner is very likely to be lower than your tax rate during your working life. And since you can deduct the contributions to the Riester pension from tax, the bottom line is that you will actually have saved taxes here.

Compensation if the pension payment is too low

If your later payment of the Riester pension is less than € 31.25 per month, you can have the pension settled (§18 SGB IV). The so-called fifth rule would then be used here. The amount to be paid out is divided by five, added to your annual income, the tax burden is determined and this is then quintupled. In such a case, it can make perfect sense to have the Riester pension paid out in this form in a year in which you do not receive any wages, but only a pension.

No social security contributions

In contrast to some other old-age provision products, the Riester pension does not require any additional social security contributions. Only the tax is to be assigned.

Can you change an existing contract?

Yes, you can indeed switch your Riester pension to another provider at any time. This possibility is unique and only exists in this form with the Riester pension. The legislature has given this option because it had to be assumed that Riester products will continue to improve over time and that the very first Riester pension insurance may not necessarily be optimal. Depending on the provider, a small exchange fee may apply. If there is already capital in your Riester contract, you can also transfer this to the new provider (if this makes sense).

A change makes sense in many cases

As already mentioned above, most Riester pensions are unfortunately not optimal and should be checked. That’s exactly what we have ours for free RiesterCheck set up for you, which is unique in Germany in this extensive way. We will evaluate your Riester pension and then explain to you exactly why you should keep your contract or why we would recommend a change and of course we will also work with you to optimize your Riester pension. So we go the whole way with you until the contract has been completely changed and your previously saved capital has also been transferred to the new contract.

That’s why you should change your provider!

What should you look out for when you graduate?

If this were so easy, then certainly not so many of the 16 million Riester savers would have bad Riester contracts.

There are essential factors that must be taken into account when taking out a Riester pension. Unfortunately, too often too much emphasis is placed on the wrong points, so that in the end you end up with a bad contract and in the worst case you don’t even know it.

Cost of the contract

Of course, costs are an important factor in a Riester contract. The higher the costs, the lower the possible return. Nevertheless, costs are not everything. And if you only pay attention to low costs and ignore the other factors mentioned below, you will most likely get a bad Riester pension.

We go in ours free online advice for example, so that we first consider all other essential criteria and ensure that these are met by the Riester providers. And then we go and choose the provider with the cheapest cost structure. This is how we ensure that you have really completed a top Riester pension.

Financial strength of the insurer

Suppose you are 25 years old today and want to take out a Riester pension. Then the contract would run until the age of 67 in terms of the contribution payment period. That’s 42 years. And let’s assume that you will be 90 years old (which is more than realistic according to current mortality tables). Then this is another 23 years. So we are talking about a time horizon of 65 years in which you entrust your money or your existence as a pensioner to an insurer.

Planning for the long term is extremely important

A lot can happen within 65 years. Financial crises, economic fluctuations, bankruptcies of companies etc.

That is why it is incredibly important that you get your Riester pension from one large, financially strong insurer which has been around for more than 50 years.

This is the only way to achieve the highest possible level of security for you in the long term.

Avoid small insurers / start-ups

Taking out your Riester pension with a start-up or a very small insurer would be completely negligent under the above assumptions.

Guaranteed, high pension factor

The pension factor is like the Achilles tendon of your Riester contract. If this is not high enough or not really 100% guaranteed, your Riester pension will become an uncontrolled time bomb.

Because the pension factor is largely responsible for how high the monthly payment of your Riester pension will be later.

1. Note:

With fixed-interest Riester contracts, there is no pension factor because there is a guaranteed interest rate. This is often the case with older contracts. The pension factor plays a decisive role in unit-linked Riester pensions.

Let’s assume that you later have € 100,000 in capital in your Riester pension at the start of your retirement. Now the pension should be paid out.

The pension factor is specified, for example, as follows: € 25 each € 10,000

This means that for every € 10,000 that is included in your contract, you will receive € 25 monthly pension. In our example that would be 10 x € 25 = € 250 monthly pension

The amount of the pension factor has a direct impact on your pension

Now it becomes clear that if your pension factor is too low, or not guaranteed, it has an immediate effect on the amount of your monthly pension.

Unfortunately, many insurers can lower the pension factor. Without you being able to do anything here. This is usually in the small print somewhere in the terms and conditions.

That is why it is so immensely important that the Pension factor is really 100% guaranteed and also correspondingly high is

2. Note:

Pure Riester fund savings plans also do not include a pension factor. This will only be determined later at the start of retirement if an insurer has been selected for retirement. However, if your pension factor is set so much later, it will very likely be extremely low compared to a pension factor guaranteed today. That’s because we’re getting older and older. The older we get, the longer an insurer has to pay us a pension. And the longer he has to pay a pension, the lower he will calculate the pension factor. So do you have a Riester pension Union Investment, DWS and Co. then you should definitely have one Change think about your Riester pension!

Potential returns / share quota of the Riester contract

A unit-linked Riester pension is not included everywhere where it says “unit-linked Riester pension”. Unfortunately, you can call a Riester pension fund-linked if only 5% of the contribution actually ends up in stocks, ETFs, etc. In our eyes, this creates a completely distorted picture for the consumer and leads – as so often – to the conclusion of a less than optimal Riester contract.

The highest possible equity quota

Your Riester provider should actually be able to invest as much of your contribution as possible in stocks / funds. Because this is the only way to really generate an additional return.

Most insurers have very low equity exposure

Most insurers, however, are not in a position to really invest a lot of your premium in stocks / funds, because they have to make at least the paid-in premiums available to you later and therefore usually only invest very conservatively.

There are very good providers

Fortunately, there are insurers who have a really high share quota compared to the market and who can really perform your Riester pension there.

If all of these points have been observed, then there is a very high probability that you have concluded a very good contract.

Time bomb pension factor | Is your Riester TOP or FLOP?

Where should you sign your Riester contract?

If you have read this far, you have probably recognized that the Riester pension is a rather complex insurance product.

Unfortunately, it is not possible to find the right provider here with just a few clicks on the Internet. There are too many pitfalls for this, such as the aforementioned 100% guaranteed pension factor or the share quota of the contract.

See an independent insurance broker

So it is advisable to look for a competent insurance broker who you trust and who works the way you imagine.

If you are still looking for a Riester expert, then you are very welcome to get one Online advice book with us (if there are currently available dates).

Here you can be sure that we will address all of the points mentioned in this article. However, we also like to let our previous customers speak for us:

Was Kunden über unsere Online-Beratung sagen

Wir können dir den ganzen Tag erzählen, wie toll wir sind, aber aussagekräftiger wird es wohl, wenn wir unsere bisherigen Kunden zu Wort kommen lassen 😉

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Common questions

Can you have all of your capital paid out?

No. With the Riester pension, a maximum of 30% of the capital can be paid out at once at the start of retirement. The rest of the capital must then be paid out as a lifelong annuity.

Can you cancel a Riester pension?

Yes, you can cancel your Riester pension at any time. However, in most cases, termination is the worst option. Because here you have to pay back your allowances and the tax benefits you received. It is better to exempt the contract from contributions if you are really no longer convinced of Riester. Or the change of your Riester pension to a better provider. Here you can even transfer the capital you have saved so far. The old contract then automatically terminates after the capital transfer.

What is the minimum contribution to the Riester pension?

The minimum contribution, also known as the base contribution, is 60 euros per year. That corresponds to 5 euros a month. At least that much has to be paid into an active Riester contract. Even if your allowances would result in a contribution of 0 euros, you still have to pay in at least the mentioned 60 euros per year.

What is a so-called “backpack contract” or “piggyback contract”?

This is the slang term for a Riester contract that a spouse concludes in order to be able to transfer the partner’s contract in the event of the partner’s death (during the contribution period). A backpack contract is usually concluded with an annual fee of 60 euros and does not serve any other real purpose. It is a kind of survivor’s protection in the event of death during the contribution payment period. And this rucksack contract is often also called a piggyback contract at Riester.

What does it cost to change a Riester pension?

Depending on the provider, the previous provider charges a minimal exchange fee (usually between 80 and 120 euros). This fee will be deducted directly from your capital to be transferred. The new provider may then have to pay new acquisition and distribution costs. However, if a really good provider has been chosen, this is in many cases better than sticking with the previous, expensive and poor provider.