Private Pension Scheme: Riester Pension
Riester-Rente
Coverage
Voluntary participation
- All persons mandatorily insured in the statutory old age pension scheme.
- Persons covered by civil servants’ old age pension scheme.
- Persons covered by mandatory insurance in farmers’ old age security scheme.
- Recipients of ALG II (if previously mandatorily insured in statutory old age pension scheme); recipients of pensions for reduced earning capacity.
- Spouses, if partner is legally entitled/eligible.
Financing
General finances
- Fully funded personal pension plans based on contribution payments (incl. state allowances) and capital revenues.
Contribution payments
- Insured persons provide contribution payments and decide upon the amount individually.
- Requirements for state subsidies: minimum payments of EUR 60 per year; maximum state allowances granted for payments of at least 4% of gross income subject to contributions (previous year) up to a maximum of EUR 2,100 (minus state allowances).
- Persons are entitled to suspend account for fixed-time period and are allowed to refer pension contributions to other pension plans (including home ownership pensions).
State support
- Only certified pension plans are subject to state subsidies and tax reliefs.
- State subsidies including basic allowances (max. EUR 175 per person/year), child allowances (EUR 300 per child/year born after 2007, EUR 185 per child/year born before 2008) and one-time bonus for new entries before age 25 (EUR 200).
- Extra tax reductions (claimed as special expenditures) granted only if amount of tax refunds exceeds state allowances; tax-deductible contributions of up to EUR 2,100 minus state allowances.
Administration
- Pension plan providers (banks, insurance companies, or investment funds) manage pension funds and pay benefits directly to person.
- The ‘Federal Central Tax Office’ approves/certifies pension plans subject to state subsidies.
- The 'Allowance Office for Retirement Assets’ (ZfA), a division of the ‘German Pension Insurance – Federal Institution’, manages the scheme (i.e. responsibility for application procedure, verification of eligibility of state allowances, payment of state allowances); contact point for insured person, pension plan providers, tax offices and other institutions.
- Tax offices decide on tax refunds (in addition to state allowances).
Qualifying Conditions
- Minimum age 62 (age 60 for contracts signed before 2012); often starting with retirement in statutory old age pension scheme.
Benefits
Pension payments
- Accumulated capital through contribution payments (incl. state allowances) and investment yields, minus administrative costs and costs/fees of pension provider.
- Life-long annuity paid monthly (using unisex mortality tables); option for one-time lump sum payment of a max. of 30% of accumulated capital at beginning of pension payments; if monthly payments are below threshold: one-time lump sum payment of 100% possible, or yearly instead of monthly benefit payments.
- Guarantee that sum of invested capital contribution payments plus state allowances is available at beginning of payout phase; no losses in nominal amounts.
- Owner-occupied residential property can be incorporated into pension arrangements.
Taxation and social security contributions on pension payments
- Pension payments are subject to income tax; tax rate depends on the total income (from all sources).
- Pension payments are not subject to social security contributions.
Coverage
Financing
Administration
Qualifying Conditions
Benefits
Voluntary participation
- All persons mandatorily insured in the statutory old age pension scheme.
- Persons covered by civil servants’ old age pension scheme.
- Persons covered by mandatory insurance in farmers’ old age security scheme.
- Recipients of ALG II (if previously mandatorily insured in statutory old age pension scheme); recipients of pensions for reduced earning capacity.
- Spouses, if partner is legally entitled/eligible.
General finances
- Fully funded personal pension plans based on contribution payments (incl. state allowances) and capital revenues.
Contribution payments
- Insured persons provide contribution payments and decide upon the amount individually.
- Requirements for state subsidies: minimum payments of EUR 60 per year; maximum state allowances granted for payments of at least 4% of gross income subject to contributions (previous year) up to a maximum of EUR 2,100 (minus state allowances).
- Persons are entitled to suspend account for fixed-time period and are allowed to refer pension contributions to other pension plans (including home ownership pensions).
State support
- Only certified pension plans are subject to state subsidies and tax reliefs.
- State subsidies including basic allowances (max. EUR 175 per person/year), child allowances (EUR 300 per child/year born after 2007, EUR 185 per child/year born before 2008) and one-time bonus for new entries before age 25 (EUR 200).
- Extra tax reductions (claimed as special expenditures) granted only if amount of tax refunds exceeds state allowances; tax-deductible contributions of up to EUR 2,100 minus state allowances.
- Pension plan providers (banks, insurance companies, or investment funds) manage pension funds and pay benefits directly to person.
- The ‘Federal Central Tax Office’ approves/certifies pension plans subject to state subsidies.
- The 'Allowance Office for Retirement Assets’ (ZfA), a division of the ‘German Pension Insurance – Federal Institution’, manages the scheme (i.e. responsibility for application procedure, verification of eligibility of state allowances, payment of state allowances); contact point for insured person, pension plan providers, tax offices and other institutions.
- Tax offices decide on tax refunds (in addition to state allowances).
- Minimum age 62 (age 60 for contracts signed before 2012); often starting with retirement in statutory old age pension scheme.
Pension payments
- Accumulated capital through contribution payments (incl. state allowances) and investment yields, minus administrative costs and costs/fees of pension provider.
- Life-long annuity paid monthly (using unisex mortality tables); option for one-time lump sum payment of a max. of 30% of accumulated capital at beginning of pension payments; if monthly payments are below threshold: one-time lump sum payment of 100% possible, or yearly instead of monthly benefit payments.
- Guarantee that sum of invested capital contribution payments plus state allowances is available at beginning of payout phase; no losses in nominal amounts.
- Owner-occupied residential property can be incorporated into pension arrangements.
Taxation and social security contributions on pension payments
- Pension payments are subject to income tax; tax rate depends on the total income (from all sources).
- Pension payments are not subject to social security contributions.
Legal Basis: Income Tax Act (Einkommensteuergesetz); Pension Contract Certification Act (Altersvorsorgeverträge-Zertifizierungsgesetz); Act on the Federal Financial Supervisory Authority(Finanzdienstleistungsaufsichtsgesetz); Insurance Contracts Act(Versicherungsvertragsgesetz).