Working Life > Retirement Arrangements > Riester-Rente

Riester Rente: a State-Run Aid for Pension Scheme

Definition, Explanation

The Riester-Rente is a state-run aid for the private and company pension scheme. The Altersvermögensgesetz (AvMG) defines the details. With this aid the individual shall be motivated to care about his pension actively. The state shows support by paying certain amounts and/or guaranteeing tax incentives.

Those who have the right to receive aid, are:

• Individuals who are compulsory covered by the statutory pension insurance
• In detail:
  • Employees or workers who are subject to social insurance contribution
  • Clerks, judges and soldiers
  • Individuals in military duty or alternative civilian service
  • Parents during their parental leave
  • Persons in marginal employment, paying the full pension insurance contribution
  • Compulsory insured freelancers (craftsmen, farmers, midwifes, teachers, publicists, artists, home trading persons), unemployed persons receiving unemployment benefit 1 (ALG I) or unemployment benefit 2 (ALG II)
  • Recipients of sickness benefits or interim pension
  • Handicapped individuals working in accredited workshops
  • Nursing individuals
  • Employees of corporate or public bodies, spiritual associations or deacon services, who have been be excused from compulsory coverage on application
  • Recipients of pensions for reduced earning capacity who would like to save additional money for the old age
• Every marriage partner who does not have the right to receive aid his- or herself but whose marriage partner complies with the requirements. Additionally, the partners have to be fiscally connected and must have a financial security contract

Those who do NOT have the right to receive aid are:

• Liberal professionals
  
• Freelancers and students who are not subject to pension insurance contributions
• Minijobbers (up to 400 Euro), who do not have to pay social insurance contributions
• retired persons who retired because of age
• Compulsory insured individuals in professional provision funds, such as doctors and pharmacists

Riester aid amounts to:

• Annual basic extra pay for adults with full savings (4% of annual earnings): 154 Euro
• Annual extra pay per child with full savings: 185 Euro. For children born after Jan 1st, 2008, the extra pay is 300 Euro
• If the amount of savings is below 4%, the extra pay will be reduced accordingly
• If no other agreements have been made by the marriage partners, the extra pay for the children is received by the female partner

Benefits are guaranteed on the following products:

• Classic private pension scheme
• Bank savings plan
• Funds-related pension scheme; internal and external investment funds
• Funds savings plan
• Direct insurances and pension funds
• Combinations are possible
• "Wohn-Riester": a contract of loan to buy or build privately used real estate and cooperative shares
• The extra payments will be credited to the pension contract directly and will not be disbursed to the recipient

Premises for benefits are:

• The private pension contracts must be certified by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This certification does not guarantee quality or yield.
• The contributions are paid by taxed income minus all social contributions
• The recipients are completely liable for taxation in Germany
• The annual savings premium is defined by 4% of the gross salary of the previous year minus extra pay. In terms of little incomes, a minimum contribution of 60 Euro per year has to be paid to receive full extra pay
• The highest possible annual contribution is 2.100 Euro including all extra pay.
• Mortgaging or transferring the pension contract to third parties is not possible
• At the recipient’s death before commencement of retirement, all extra pay and tax relieves have to be paid back. There is one exception: If the marriage partner has a Riester contract, the complete contract value including all extra payments can be transferred to the marriage partner

Pay Offs:

• At the commencement of retirement, you can receive 30% of the capital saved. Otherwise the pay off is done in the form of life annuity on a monthly basis.
• The pay off can only be done if the recipient is over 60 years of age
• All pay offs are completely liable for taxation

Miscellaneous:

• Participation is voluntary
• Children’s allowance can only be guaranteed if the recipient receives family benefits (Kindergeld)
• Application for Riester-Rente has to be done only once
• The contract can be closed during the savings phase
• The cancellation period is 3 months before the end of the legal year
• A change of contract with the saved amount being transferred is possible within the cancellation period
• The savings (savings plus extra pay) must not be above 2.100 Euro per year. These extra payments can be set off against tax liability, defined as special payments. This is especially lucrative with high private contributions and a high tax rate.
• For the benefits, no income tax is raised.
• The contract can be inoperative

Tips, Checklist

• In your tax computation, define your contributions for additional pension according to the Riester model as special payments
• Check whether it is lucrative to „riester“, or if a private pension contract would be more suitable for you. Usually, “riestering” is lucrative for individuals with little or normal income. Long contract periods and the number of children have positive effects
• Riester products are completely liable for taxation – private pension insurances are not
• When choosing a Riester product, make sure that it is suitable for you (single, family, age). Older individuals should choose more defensive products while younger persons might also choose higher-risk funds
• Consider if a invalidity protection and/or a protection of your bereaved would be sensible for you
• Extra payment have to be submitted separately minimum 2 years before contract conclusion, otherwise they become invalid. You will get the necessary standard form at your contract provider
• If you are no longer subject to complete taxation due to a longer stay abroad but returning to Germany before pension age, the extra payments remain valid
• Authorize your provider to submit the extra payments on a yearly basis
• As a foreigner working in Germany and being subject to income taxation, you can also receive these benefits. By the time you return to your home country, you will however have to pay them back
• Inform your provider about changes which have an impact on your benefit claims. These changes include divorce, marriage, birth, change of professional status, additional contracts etc.

Information Sources

• Tarifcheck24 - Riester-Rente

Last update: 06/28/2010