Riester Pension Experiences: Make the Most of State Funding and Avoid Pitfalls
22 Apr 2025
12
Minutes
Katrin Straub
CEO at nextsure
The Riester pension promises government allowances and tax advantages, but many savers are unsure whether the model is truly worthwhile. This article highlights real experiences with the Riester pension, provides concrete calculations, and offers you well-founded recommendations. This way, you can make an informed decision for your future.
The topic in brief and concise terms
The Riester pension offers government subsidies (up to 175 euros basic subsidy, up to 300 euros child subsidy) and tax advantages (up to 2,100 euros deductible), but is fully taxable during the payout phase.
Low-income earners and families with children can particularly benefit due to the high subsidy rate; for others, a precise cost-benefit analysis is crucial.
High costs and low returns are common criticisms; choosing a cost-effective contract and regularly reviewing it are essential for positive Riester pension experiences.
The key facts about the Riester pension at a glance
The Riester pension is a state-subsidised private pension scheme in Germany. It guarantees that savers will receive at least their paid contributions and the received allowances back at the start of retirement. The benefits consist of annual allowances and possible tax advantages. To receive the full benefits, four per cent of the previous year's gross income (a maximum of 2,100 euros including allowances) must be contributed.
Government subsidies: How to benefit from the Riester support
A key incentive of the Riester pension scheme is the direct government subsidies. Every directly eligible individual receives an annual basic allowance of €175. For each child eligible for child benefit, there is an additional child allowance: €185 for children born before 2008 and €300 for children born from 2008 onwards. Young professionals under 25 receive a one-time bonus of €200. A family with two children born after 2008 can thus receive allowances totalling €775 annually (€175 basic allowance plus two €300 child allowances). These allowances significantly reduce the personal contribution, making the Riester pension scheme particularly advantageous for families and low earners. To receive the allowances, an application must be submitted, although many providers simplify this process through a permanent allowance application.
The amount of the allowances can make the Riester pension especially attractive:
Basic allowance: €175 annually for each saver.
Child allowance (born before 2008): €185 annually per child.
Child allowance (born from 2008): €300 annually per child.
Entry-level bonus: One-time €200 for those under 25.
Minimum personal contribution: Four percent of the previous year's gross income (up to a maximum of €2,100) minus the allowances.
These subsidies are an essential component for a solid retirement provision. Next, we will look at the tax aspects.
Take advantage of tax benefits: The Riester pension in your tax return
In addition to direct allowances, Riester savers can also benefit from significant tax advantages. Contributions paid, including allowances, can be claimed as special expenses for tax purposes, up to a maximum amount of 2,100 euros per year. This leads to a noticeable reduction in the tax burden during the accumulation phase. As part of the favourable examination, the tax office automatically checks whether the tax advantage is greater than the allowances. If this is the case, the difference is refunded. To claim this, the Anlage AV of the income tax declaration must be completed. Many high earners maximise their returns through tax savings in this way. However, bear in mind that payments during the retirement phase must be fully taxed (deferred taxation). The complexity of the contracts and deferred taxation are frequently mentioned points in negative experiences with Riester pensions. The right strategy depends on your individual situation.
Practical examples: Who really benefits from a Riester pension?
The Riester pension does not fully realise its potential for every type of saver equally. Low-income earners and families with children can particularly benefit. A low-income earner with an annual income of 20,000 euros, for example, would need to pay 800 euros (four percent). After deducting the basic allowance of 175 euros, a personal contribution of only 625 euros remains. If this person has two children (born after 2008), an additional 600 euros child allowance would apply, reducing the personal contribution to 25 euros with a total subsidy of 775 euros. Here, the allowances often exceed the personal contribution. High earners can also benefit from the special expenses deduction of up to 2,100 euros if the tax advantage exceeds the allowances. Riestering can be less attractive for high earners without children if the return after costs is low. Individual experiences with the Riester pension largely depend on personal circumstances and the chosen contract. A careful examination of whether the Riester pension is worthwhile is therefore essential. Choosing the right product is crucial in this regard.
Costs and Returns: The Critical Points of Many Riester Contracts
A common criticism and cause of negative experiences with Riester pensions are the costs. High initial and administrative costs can diminish returns, especially with traditional pension insurance plans with low guaranteed interest rates. In some cases, the fees can significantly eat into the government subsidies. Fund-linked Riester contracts offer potentially higher return opportunities but also come with higher risks. [5] The statutory contribution guarantee, which ensures that at least the paid contributions and allowances are available, often forces providers to invest very conservatively, limiting the potential for returns. Transparency in costs is an important factor when selecting a provider. It is advisable to closely examine the effective costs of an offer. Consumer centres frequently point out expensive contracts. Before cancelling a Riester contract, you should consider alternatives such as contribution exemption. [2] The payout phase also holds pitfalls.
Payout Phase: What to Expect at the Start of Retirement
At the end of the savings phase, the payout of the Riester pension begins, usually as a lifelong monthly annuity. At the start of the payout phase, savers can withdraw up to 30 percent of the accumulated capital as a lump sum without losing the benefits. This partial withdrawal naturally reduces the subsequent monthly pension. For very small pension entitlements (known as small pensions, less than 35.35 euros monthly in 2024), a full capital payout is also possible. It's important: All payouts from the Riester pension are fully taxable at the personal income tax rate. This is referred to as downstream taxation. Generally, for those compulsorily insured in the statutory health insurance, no health and long-term care insurance contributions are levied on the Riester pension. The question of health insurance contributions is a detail often overlooked. The inheritability is another point to consider.
Options in the payout phase include:
Lifelong monthly annuity.
Partial capital withdrawal of up to 30 percent at the start.
Full capital payout for small pensions.
Transfer of capital to the spouse's contract in the event of death (limited inheritability to other individuals). [2]
Expert opinions and current developments: The future of the Riester pension
The Riester pension has been criticized for years by consumer advocates and financial experts. The main criticisms are high costs, low returns, and the complexity of the products. Some experts view the model as a failure and call for fundamental reforms or alternative government-sponsored products. [-ö-2] Recent court rulings, such as those from the Federal Court of Justice (BGH), have declared certain fee clauses in Riester contracts invalid, potentially benefiting savers. Additionally, from 2025, there will be changes in the allowances procedure aimed at reducing allowance clawbacks. [5] Despite all criticism, a well-chosen Riester contract, particularly for those eligible for benefits with children or low earners, can be a sensible supplement to retirement provision. The discussion about the future of the Riester pension and potential reforms remains exciting. Individual advice is therefore essential.
Our Expert Tip: Optimise Your Riester Pension Experience
More useful links
Bundesfinanzministerium provides statistics on Riester funding until 2023.
Bundesministerium für Arbeit und Soziales (BMAS) offers statistics on Riester contracts.
Deutsche Rentenversicherung provides comprehensive information about the Riester pension.
Zentrale Zulagenstelle für Altersvermögen (ZfA) is the central point of contact for allowances related to retirement provision.
Stiftung Warentest offers a comprehensive analysis of the Riester pension.
Stiftung Warentest conducts a return check for Riester contracts and fund savings plans.
Statista provides statistics on the number of completed Riester contracts.
Wikipedia offers a general overview of the Riester pension.
FAQ
What experiences have others had with the Riester pension?
Experiences with the Riester pension are mixed. Many benefit from the allowances, especially families. Others criticize the high costs and low net returns. It's important to have a suitable, cost-effective contract and to make full use of the support.
How much money will I get from the Riester pension?
That depends on your contributions, the allowances received, the return on your contract, and the costs. At a minimum, your contributions plus allowances are guaranteed. The actual monthly pension can vary significantly.
Is the Riester pension tax-free upon payout?
No, the Riester pension is not tax-free upon payout. It is subject to deferred taxation, meaning the entire pension must be taxed at your then-current personal income tax rate.
Can I withdraw the entire Riester pension?
A full payout is only possible with so-called small pensions (if the monthly pension would be very low, for example, less than €35.35 in 2024). Otherwise, you can withdraw up to 30 per cent of the capital at the start of the payout phase.
What happens to my Riester pension if I die?
The accumulated capital can be transferred to the Riester contract of the spouse, in which case the subsidies remain intact. When paid out to other heirs, allowances and tax benefits usually have to be repaid. There are different rules for inheritability depending on the contract. [2]
Is the Riester pension worth it for low-income earners?
Yes, for low-income earners, the Riester pension can often be worthwhile, as the personal contribution can be very low due to the government allowances, and the subsidy rate is accordingly high.
