Riester pension experiences: make the most of state subsidies and avoid pitfalls
22.04.25
9
Minutes
Katrin Straub
Managing Director at nextsure
The Riester pension promises state subsidies and tax benefits, but many savers are unsure whether the scheme is really worthwhile. This article takes a look at real Riester pension experiences, shows concrete calculation examples and gives you well-founded recommendations for action. This will help you make an informed decision for your future.
The topic in brief and concise terms
The Riester pension offers government bonuses (up to €175 basic allowance, up to €300 child allowance) and tax advantages (up to €2,100 deductible), but is fully taxable in the payout phase.
In particular, low-income earners and families with children can benefit from the high subsidy rate; for others, a careful cost-benefit analysis is crucial.
High costs and low returns are common criticisms; choosing a low-cost contract and reviewing it regularly are essential for positive Riester pension experiences.
The most important facts about the Riester pension at a glance
Riester pension is a state-subsidised private retirement provision in Germany. It guarantees that savers receive back at least their paid-in contributions and the bonuses they have received when they reach retirement age. The support consists of annual bonuses and possible tax advantages. To receive the full subsidy, four per cent of the previous year’s gross income (maximum €2,100 including bonuses) must be paid in.
State subsidies: How to benefit from Riester incentives
A key incentive of the Riester pension are the direct state subsidies. Every person directly eligible for funding receives an annual basic allowance of 175 euros. For each child eligible for child benefit, there is also a child allowance: 185 euros for children born before 2008 and 300 euros for children born from 2008 onwards. Career starters under 25 receive a one-off bonus of 200 euros. A family with two children born after 2008 can therefore receive 775 euros in allowances per year (175 euros basic allowance plus twice 300 euros child allowance). These allowances significantly reduce the own contribution, which makes positive Riester pension experiences possible, especially for families and lower earners. To receive the allowances, an application must be submitted, but many providers simplify this as part of a standing allowance application.
The amount of the allowances can make the Riester pension particularly attractive:
Basic allowance: 175 euros annually for every saver.
Child allowance (born before 2008): 185 euros annually per child.
Child allowance (born from 2008 onwards): 300 euros annually per child.
Career starter bonus: One-off 200 euros for under-25s.
Minimum personal contribution: Four per cent of the previous year’s gross income (maximum 2,100 euros) minus the allowances.
These subsidies are an important building block for solid retirement provision. Next, we will look at the tax aspects.
Make use of tax benefits: The Riester pension in your tax return
In addition to the direct allowances, Riester savers can also benefit from significant tax advantages. The contributions paid in, including the allowances, can be claimed for tax purposes as special expenses up to a maximum of €2,100 per year. This leads to a noticeable reduction in the tax burden during the accumulation phase. As part of the favourable assessment, the tax office automatically checks whether the tax advantage is greater than the entitlement to allowances. If this is the case, the difference is refunded. To claim this, Annex AV of the income tax return must be completed. Many higher earners maximise their returns in this way through the tax savings. However, bear in mind that payouts during retirement must be taxed in full (deferred taxation). The complexity of the contracts and deferred taxation are frequently cited points in negative Riester pension experiences. The right strategy depends on your individual circumstances.
Practical examples: Who is the Riester pension really worth it for?
The Riester pension does not fully realise its potential for every type of saver equally. Low earners and families with children can benefit particularly. For example, a low earner with an annual income of €20,000 would have to contribute €800 (four per cent). After deducting the basic allowance of €175, only €625 remains to be paid out of pocket. If this person has two children (born after 2008), a child allowance of €600 would be added, reducing the personal contribution to €25 and bringing total support to €775. Here, the allowances often exceed the personal contribution. Higher earners can also benefit from the special expenses deduction of up to €2,100 if the tax advantage exceeds the allowances. Riester saving can be less attractive for higher earners without children if the return after costs is low. Individual Riester pension experiences depend heavily on personal circumstances and the contract chosen. A careful review of whether the Riester pension makes sense is therefore essential. Choosing the right product is crucial.
Costs and returns: the critical points of many Riester contracts
A common criticism and cause of negative Riester pension experiences are the costs. High initial and administration costs can reduce returns, particularly in traditional pension insurance policies with low guaranteed interest rates. In some cases, the fees eat up a significant part of the state subsidy. Riester contracts linked to funds offer potentially higher return opportunities, but also involve higher risks. [5] The statutory contribution guarantee, which ensures that at least the contributions paid in and the bonuses are available, often forces providers into very conservative investments, which limits return opportunities. Transparency regarding costs is an important factor when choosing a provider. It is advisable to examine the effective costs of an offer carefully. Consumer advice centres repeatedly point out expensive contracts. Before cancelling a Riester contract, you should consider alternatives such as making the contract paid-up. [2] The payout phase also has its pitfalls.
Payout phase: What to expect when your pension starts
At the end of the savings phase, payment of the Riester pension begins, usually as a lifelong monthly pension. At the start of the payout phase, savers can have up to 30 per cent of the saved capital paid out at once without losing the subsidy. This partial payout naturally reduces the subsequent monthly pension. In the case of very small pension entitlements (so-called small pensions, in 2024 under 35.35 euros per month), a full lump-sum payment is also possible. Important: All payments from the Riester pension are fully taxable at the personal income tax rate. This is known as deferred taxation. For compulsory members of statutory health insurance, no health or long-term care insurance contributions are generally due on the Riester pension. The question of health insurance contributions is a detail that is often overlooked. Inheritability is another point to consider.
Options in the payout phase include:
Lifelong monthly pension.
Partial lump-sum payment of up to 30 per cent at the start.
Full lump-sum payment in the case of small pensions.
Transfer of the capital to the spouse's contract in the event of death (limited inheritability for other persons). [2]
Since its introduction, the Riester pension has been criticised for years by consumer protection groups and financial experts. The main points of criticism are high costs, low returns and the complexity of the products. Some experts regard the model as a failure and call for fundamental reforms or alternative state-subsidised products. [-ö-2] Recent court rulings, for example by the Federal Court of Justice (BGH), have declared certain fee clauses in Riester contracts invalid, which could potentially benefit savers. In addition, from 2025 there will be changes to the subsidy procedure, which are intended to reduce the recovery of subsidies. [5] Despite all the criticism, a well-chosen Riester contract, especially for eligible people with children or low earners, can be a useful addition to the retirement provision. The debate about the future of the Riester pension and possible reforms remains lively. Individual advice is therefore essential.
Our expert tip: getting the most out of Riester pension experiences
To have positive Riester pension experiences, you should bear a few points in mind. Check carefully whether you belong to the group eligible for subsidies and how high your individual subsidy rate is. Compare different providers and pay particular attention to low effective costs – often these are less than one per cent. Choose a contract type that matches your appetite for risk; fund savings plans offer higher return opportunities than traditional insurance policies, which often only generate a return of zero to one per cent after costs. Make sure you pay the required minimum annual personal contribution to receive the full allowances; a standing allowance application simplifies this. Have your contract checked regularly, especially when your personal circumstances change, such as marriage or the birth of a child. If you are unhappy, premium suspension is often better than an expensive cancellation. Professional advice, such as that offered by nextsure, can help you make the right decision for your retirement provision and avoid pitfalls. This way, you can make your Riester pension experience positive and get the most out of state subsidies.
More useful links
Federal Ministry of Finance provides statistics on Riester subsidies up to 2023.
Federal Ministry of Labour and Social Affairs (BMAS) provides statistics on Riester contracts.
German Pension Insurance offers comprehensive information on the Riester pension.
Central Allowance Office for Retirement Assets (ZfA) is the central point of contact for allowances in connection with retirement provision.
Stiftung Warentest offers a comprehensive analysis of the Riester pension.
Stiftung Warentest carries out a return check for Riester contracts and fund savings plans.
Statista provides statistics on the number of Riester contracts concluded.
Wikipedia provides a general overview of the Riester pension.
FAQ
What experiences have others had with Riester pensions?
Riester pension experiences are mixed. Many benefit from the allowances, especially families. Others criticise high costs and low net returns. What matters is a suitable, low-cost contract and making full use of the subsidies.
How much money will I get from the Riester pension?
It depends on your payments, the allowances received, the return on your contract and the costs. At a minimum, your payments plus allowances are guaranteed. The actual monthly pension can vary significantly.
Is the Riester pension tax-free when paid out?
No, the Riester pension is not tax-free when paid out. It is subject to deferred taxation, which means the entire pension must be taxed at your personal income tax rate applicable at that time.
Can I have the Riester pension paid out in full?
A complete payout is only possible for so-called small pension amounts (if the monthly pension would be very low, e.g. under 35.35 euros 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 spouse's Riester contract, in which case the subsidies remain in place. If paid out to other heirs, allowances and tax benefits usually have to be repaid. Depending on the contract, there are different rules for inheritance. [2]
Is the Riester pension worth it for low earners?
Yes, for low-income earners, a Riester pension can often be worthwhile, as the personal contribution can be very low thanks to state subsidies, and the level of support is correspondingly high.
