What types of state-subsidised pension schemes are available?

The choice of the right pension plan depends on your life situation, age, and risk tolerance. For younger savers, high-yield products such as fund savings plans are suitable, while older investors should focus on security, e.g. bank savings plans or traditional pension insurance. The Riester home pension is ideal for homeowners.

What types of state-subsidised pension schemes are available?

How much do I need to save annually to receive the Riester bonus?

The Riester pension is subsidised by the government through allowances and tax benefits. To receive the maximum funding, savers must meet certain conditions and make a minimum contribution.

How to achieve full Riester funding?

• Basic allowance: The basic funding is 175 Euro per year. There are additional allowances for children:
  • 185 Euro per child, born before 2008.
  • 300 Euro per child, born from 2008 onwards.
• Savings amount: To receive the full funding, 4% of the previous year's income subject to social insurance (minus the allowances) must be paid into the Riester contract annually.
• Minimum personal contribution: Regardless of income, the personal contribution is at least 60 Euro per year.

Calculation examples

1. Family with two children (born after 2008):

• Gross annual income: 40.000 Euro
• Required contribution (4%): 1.600 Euro
• Allowances:
  • Basic allowance for one parent: 175 Euro
  • Child allowances: 300 Euro × 2 = 600 Euro
  • Total allowances: 775 Euro
• Personal contribution: 1.600 Euro - 775 Euro = 825 Euro per year

2. Single person without children:

• Gross annual income: 30.000 Euro
• Required contribution (4%): 1.200 Euro
• Allowances:
  • Basic allowance: 175 Euro
  • Total allowances: 175 Euro
• Personal contribution: 1.200 Euro - 175 Euro = 1.025 Euro per year

Special conditions for spouses and parental leave

• Spouses: Non-eligible spouses can receive the basic allowance without their own contributions if the eligible partner has a Riester contract.
• Parental leave: Parents on parental leave acquire pension rights in the statutory pension insurance and must pay the minimum personal contribution of 60 Euro for Riester funding.

What happens with lower payments?

• If the required personal contribution is not fully paid, the government funding will be reduced proportionally.
• It is possible to temporarily suspend the Riester contract. In this case, the funding for the corresponding period will be forfeited.

Conclusion: The amount of Riester funding depends on your income and the amount of your contributions. The government allowances can make up a significant part of the savings and should be fully utilised. A tax programme or advice from your provider can help you.

How much do I need to save annually to receive the Riester bonus?

How do I take out a Riester pension plan?

A Riester pension plan is a government-subsidised way to save for retirement. Here are the key steps:

1. Check investment options

Choose an investment form that suits your risk tolerance and life situation:

• Traditional pension insurance: Safe, but low returns.
• Fund savings plan: Higher return potential, but risky.
• Bank savings plan: Highest security, but low interest rates.
• Home Riester: Subsidies for owner-occupied property.

2. Choose certified products

• Only products with a BaFin certificate are eligible for subsidies.
• The certificate guarantees eligibility for subsidies but says nothing about quality or returns.

3. Compare costs and returns

• Have the potential returns and costs (e.g. initial fees) calculated.
• Use independent tests or advice.

4. Consultation and conclusion

• Discuss all details with your bank, insurance company or building society.
• Ask specific questions about allowances, flexibility and costs.

Special features of Home Riester

• Subsidies only apply to owner-occupied properties.
• Selling or renting out can trigger repayments.

Conclusion: Carefully compare offers and choose an investment form that suits your needs. Use independent advice to benefit from the Riester subsidies.

How do I take out a Riester pension plan?

Can I get the Riester allowance for every private pension?

No. You cannot receive Riester subsidies for every private old-age provision. Only old-age provision contracts certified by the Federal Insurance Supervisory Office are eligible for funding. The following requirements apply for certification:

• Start of pension: The payment must not start before the age of 60 or the legal pension.
• Payout: Payments must be made in the form of a constant or rising annuity; for new contracts, a one-off payment of up to 30 percent is also possible. A life-long pension guarantee must be in place for 85 years and older.
• Guarantee of contributions: At the beginning of the pension phase, at least the contributions paid in plus allowances must be available.
• Distribution of costs: For contracts concluded from 2005 onwards, acquisition costs must be spread evenly over at least five years. For older contracts, a limit of ten years applies.
• No transferability: A Riester contract cannot be assigned or transferred to others. Security: The capital saved may not be pledged or lent.
• Transparency: Providers must inform savers annually of the retained acquisition, distribution and administrative costs. Even in the event of a contract change, the associated costs must be disclosed.
• Unisex tariffs: Women and men pay the same premium for newly concluded contracts.

These certification criteria only indicate which old-age provision contracts can be promoted. However, certification is not a seal of approval for the quality of a Riester contract.

Can I get the Riester allowance for every private pension?

Who is eligible for the career starter bonus?

A Riester pension plan is particularly attractive for young savers. In addition to the regular funding, there is a one-off bonus of 200 Euro for career starters up to the age of 25. This bonus has been automatically granted together with the basic allowance since 2008.

Requirements for the career starter bonus

• Age: You must not be older than 25 at the time of signing the contract.
• Eligibility: You must meet the requirements for Riester funding, e.g. be in employment subject to social insurance contributions.
• No separate application: The bonus is automatically applied for through the basic allowance application.

Example calculation

In the first year, young savers receive the following state funding:

• Basic allowance: 175 Euro
• Career starter bonus: 200 Euro
• Total funding: 375 Euro

Note: The state funding reduces your own minimum savings contribution, as the allowances are paid directly into your Riester contract.

Conclusion

The career starter bonus rewards young savers with an additional 200 Euro funding. This makes starting a Riester pension particularly attractive and helps to build up capital for retirement at an early stage. Make sure to use the bonus in time, as it is only available until the age of 25.

Who is eligible for the career starter bonus?

How much are allowances and special expenses for Riester?

Those who pay a minimum annual contribution into their Riester contract receive the full bonuses. The amount of the bonuses and tax benefits depends on the following factors:

Example:

A couple with two children (born 2010 and 2007) receives the following bonuses in 2018:

• Basic bonus spouse 1: 175 Euro
• Basic bonus spouse 2: 175 Euro
• Child bonus (born 2010): 300 Euro
• Child bonus (born 2007): 185 Euro
• Total: 835 Euro

The minimum personal contribution (4% of gross income) is reduced by the bonuses, so the remaining savings amount is lower.

Tax benefits:

• The special expenses deduction applies to bonuses and personal contributions.
• Even if no bonus is applied for, the bonus entitlement is considered in the favourable assessment.
• It is not possible to exclude the bonus and instead use only the tax advantage.

Conclusion: The Riester bonuses and special expenses deduction make retirement provision particularly attractive. To take full advantage, the minimum personal contribution should be made and the bonuses applied for.

How much are allowances and special expenses for Riester?

From 2018: Riester bonus increased for new and old contracts

Contributions to Riester contracts are subsidised by the state - through the old-age provision supplement and, if applicable, additional tax savings as a result of special expenditure deduction (so-called Riester subsidy). The full Riester bonus will only be paid if at least 4 percent of the previous year's income, with a maximum of 2.100 Euro minus bonus entitlements, have been paid into a Riester contract.

Currently, the basic bonus is being increased from 154 Euro to 175 Euro from 2018 with the "Act on the Strengthening of Occupational Pensions and Amendments to Other Legislation (Company Pensions Strengthening Act)" from 17 August 2017, and the child benefit remains unchanged (§ 84 sentence 1 EStG).

The increased bonus is granted not only for newly concluded Riester contracts, but also for existing contracts. The increase to 175 Euro creates a greater incentive for low-income earners in particular to do something for their own old-age provision.

The retirement savings bonus consists of the following components:

• Basic bonus: from 2018 175 Euro, until 2017 154 Euro,
• Child bonus: 300 Euro per child from the year of birth 2008 and 185 Euro per child born before that.
• Job starter bonus for young people under 25 years of age: additional and one-off 200 euros.

From 2018: Riester bonus increased for new and old contracts

Will the pension payments be taxed later?

Yes. Since the Riester pension is made up of untaxed income, the subsequent payments are subject to regular income tax. Thus, pensions are not only taxable at the rate of return (interest), as is the case with pension payments from a private pension insurance scheme, which are not supported by the state. Riester-funded pensions are fully taxable in old age.

For future pensioners, this means that if they have taken out a private pension insurance policy for which they pay contributions from taxed income, they only have to pay tax on the portion of income at retirement age. If, on the other hand, pensioners have chosen an investment form for which they have received state allowances, they must pay tax on the pension at their personal tax rate. And this is dependent on the pensioner's total income. This applies to all subsidized investments, i. e. both for insurance companies and fund or bank savings plans.

The good news: no final withholding tax. Although, for example, the gains of conventional fund savings plans have been subject to the flat-rate withholding tax since 2009, Riester fund savings plans are exempt from the flat-rate withholding tax. This also applies to the profits from the other Riester investments. At the beginning of the payout phase, the investor can dispose of the price gains without deduction of the final withholding tax. However, pensions must be taxed at the personal tax rate (post-taxation) which is based on total income.

Wohn-Riester: Complicated taxation. In the case of residentries, the subsequent taxation is applied. The contributions remain tax-free, only the pension itself has to be taxed - with its personal tax rate. And that makes things a bit more complicated for Wohn-Riester: the contributions and allowances, including assumed interest of two percent, are booked to an imaginary "housing promotion account". However, the saver cannot access the account, because the credit recorded there is put into real estate promotion and does not exist in principle any more. At the beginning of the "payout phase", i. e. when the other Riester savers - "conventional" - receive their pension and have to pay tax on this income, the resident priest saver also receives a notice of his tax liability, which has accumulated on the imaginary account in recent years. Then the owner-occupier has the choice: All at once tax, as a reward he gets a discount of 30 percent. Or taxation in stages: over a period of up to 23 years, he can pay his tax liability in installments, just like anyone receiving a regular Riester pension. Here, too, the tax rate is based on the total income of the pensioner.

Will the pension payments be taxed later?

Subsidies also for mini-jobbers

An additional pension is especially important for mini-jobbers. However, the fewest low-income earners are aware that even mini-jobbers with earnings of up to 450 euros can benefit from Riester subsidies.

The following prerequisites must be fulfilled for this:

1. Mini-jobbers must be compulsorily insured in the statutory pension insurance scheme: this has been the case for mini-jobs since 2013.
2. They also have to pay their own contribution towards the pension insurance. Since the employer pays a lump sum of 15 percent to the pension insurance for mini-jobbers, mini-jobbers only have to pay the difference of 3.7 percent to the full pension insurance contribution of 18.7 percent. At 450 euros, that's 16.65 euros per month. In the case of mini-jobs in private households, the employer's flat-rate levy amounts to five percent. Mini-jobbers would have to pay a difference of 13.7 percentage points or 61.65 euros per month at 450 euros per month.
3. Mini-jobbers must also pay a minimum contribution into the Riester contract in order to receive the full amount of the allowances. 4 percent of the previous year's income minus the bonus, but at least 60 euros per year. With a monthly salary of 450 euros, the minimum contribution is therefore 62 euros per year.

The total amount of the grant consists of a basic allowance of 154 euros and a child benefit of 300 euros for children born after 2008 and 185 euros for children born before 2008.

Further advantages: With the additional payments into the state pension, not only the pension rights increase. Mini-jobbers can even make use of medical or vocational rehabilitation services. In addition, the contributions are tax-deductible as special expenses.

Source: This report is part of the series "Finanzwissen für alle" by the BVI Federal Association of Investment and Asset Management e.V.

Subsidies also for mini-jobbers