Riester pension and private retirement insurance: Optimally utilise state support and private provision
9 May 2025
5
Minutes
Katrin Straub
CEO at nextsure
The statutory pension alone is often not enough to maintain your standard of living in retirement. Find out how the Riester pension can supplement your private pension insurance and what advantages state subsidies offer. Secure your financial future now.
The topic in brief and concise terms
The Riester pension is a state-subsidized private retirement plan that complements the statutory pension through allowances and tax advantages.
Families with children and low-income earners particularly benefit from high subsidies with the Riester pension.
At the beginning of the payout phase, up to 30 percent of the Riester capital can be withdrawn as a one-time payment, while the remainder is converted into a lifelong annuity.
Riester pension: Understanding the basics of government incentives
The Riester pension was introduced in 2002 to strengthen private retirement provisions. It complements the statutory pension insurance with government allowances and potential tax advantages. The goal is to reduce the gap in provisions caused by decreasing pension levels. This form of private pension insurance is an important component of retirement planning in Germany.
Members of the statutory pension insurance and civil servants are entitled to the support. Spouses can also benefit under certain conditions, even if they only contribute a minimum of 60 euros annually. Therefore, the Riester pension is accessible to a wide range of people. The government support makes it particularly attractive.
Secure maximum subsidies: Allowances and tax advantages of the Riester pension
The state subsidy for the Riester pension consists of allowances and tax advantages. The annual basic allowance is 175 euros per person. For each child eligible for child benefit, there is an additional child allowance of 185 euros (born before 2008) or 300 euros (born from 2008). Young professionals under 25 receive a one-time bonus of 200 euros.
To receive the full allowances, four percent of the previous year's gross income subject to pension insurance must be paid. The maximum subsidised amount is 2,100 euros annually, including allowances. Contributions and allowances can be claimed as special expenses in the tax return. The tax office then checks in a cost-effectiveness test whether the tax advantage is greater than the allowances. More information on tax aspects can be found here.
Who benefits most from the Riester pension?
The Riester pension is particularly beneficial for families with children and low-income earners. The child allowances significantly reduce the individual's contribution. A family with two children born after 2008 can receive up to 775 euros in allowances annually (175 euros basic allowance plus 300 euros child allowance twice). Almost 40 percent of Riester savers earn less than 20,000 euros per year.
High earners can also benefit, especially through the special expense deduction. Singles without children often benefit more from the tax savings than from the allowances. The Riester pension thus offers financial incentives for different life situations. However, it is always advisable to individually assess the personal situation.
Types of Riester pension contracts: From classic to fund-linked
There are various types of investments for the Riester pension, offering different opportunities for returns and aspects of security. Here are the most common options:
Classic Riester pension insurances: These provide a guaranteed minimum pension and often include surplus participation. Security is paramount here, and the minimum pension is known at the time of contract signing.
Unit-linked Riester pension insurances: Parts of the capital are invested in mutual funds, allowing for higher return opportunities with good stock market performance. A unit-linked pension insurance can be attractive.
Riester bank savings plans: The balance earns interest and flows into a payout plan. From age 85 onwards, an additional pension insurance is often taken out for pension payments.
Riester fund savings plans: Similar to unit-linked insurances, they offer return opportunities through fund investments. The contribution guarantee applies at the end of the accumulation phase.
Housing Riester: The subsidy can be used for the purchase, construction, or debt repayment of an owner-occupied property. This is an option for prospective homeowners.
All Riester contracts guarantee that at the start of the payout phase, at least the contributions paid and allowances will be available. The closing costs must be spread over at least five years.
Practical examples and calculations: How the funding has an impact
Let's take an employee with a gross annual income of 40,000 euros and two children (born in 2010 and 2012). Her minimum personal contribution for the full subsidy is four percent of 40,000 euros, which is 1,600 euros. The allowances are deducted from this: 175 euros basic allowance plus twice 300 euros child allowance amounts to 775 euros. So, she would need to contribute 825 euros (1,600 euros minus 775 euros) herself to receive the full allowances. Her total expenditure for retirement provision is therefore 1,600 euros, of which the state covers 775 euros.
A career starter, 23 years old, with an income of 30,000 euros, has to contribute 1,200 euros (four percent of 30,000 euros) minus 175 euros basic allowance and 200 euros career starter bonus. His personal contribution would be 825 euros. The subsidy rate can be over 50 percent for low-income earners with children. These examples illustrate the significant financial advantage of state support for private pension provision.
Expert Depth: Legal Foundations and Recent Judgments on the Riester Pension
The legal basis for the Riester pension can be found in the Income Tax Act (EStG), particularly in § 10a and §§ 79 ff. EStG. The Retirement Savings Act (AVmG) of 2002 introduced the promotion. Certification of Riester products is conducted by the Federal Central Tax Office and ensures that certain criteria are met, such as the guarantee of contributions and allowances upon the commencement of the pension. Payments are made at the earliest from the age of 62 for contracts from 2012 onwards.
Recent judgments often concern the transparency of contract terms or the levying of costs. It is important to stay informed about the current legal situation. Our expert tip: When concluding a contract, pay attention to a clear presentation of all costs and fees. The federal government also plans reforms to make private retirement provision more attractive, which could also affect the Riester pension. [2025-05-22] An overview of the pension provision tiers helps with understanding. The downstream taxation of the Riester pension means that payments in old age are taxed at the personal tax rate.
Payout Phase and Flexibility: What You Need to Know
At the beginning of the payout phase, up to 30 per cent of the saved capital can be withdrawn as a lump sum. The remaining amount is paid out as a lifelong monthly pension. This flexibility allows larger purchases to be made at the start of retirement. Although it is possible to terminate the contract before retirement begins, it usually results in the loss of state subsidies and tax benefits.
An alternative to terminating the contract is to make it contribution-free. In doing so, the previously received subsidies are retained. The saved capital is protected from seizure and counting towards citizen's income during the savings phase. The differences to other forms of provision are relevant here. Inheritance is limited; however, the balance can be transferred to the spouse's Riester contract without affecting benefits.
Costs and Returns: A Critical Look at Riester Contracts
nextsure: Your Partner for Private Pension Insurance
More useful links
Bundesfinanzministerium provides statistics on Riester subsidies up to 2023.
Deutsche Rentenversicherung provides information about the Riester pension.
Verbraucherzentrale provides information on the Riester pension from a consumer perspective.
Wikipedia offers a comprehensive overview of the Riester pension.
BMAS (Federal Ministry of Labour and Social Affairs) provides general information on pensions and retirement provision.
Bundesfinanzministerium publishes statistics on Riester payouts in 2023.
BMAS (Federal Ministry of Labour and Social Affairs) provides statistics on Riester contracts.
Verbraucherzentrale explains who might benefit from the Riester pension.
Bundesfinanzministerium offers the final report of the focus group on private retirement provision.
FAQ
Who benefits the most from a Riester pension?
The Riester pension is particularly worthwhile for families with children due to the child allowances, and for low-income earners, as the government subsidies can make up a significant portion of the savings contribution. Young professionals also benefit from a one-time bonus.
What types of Riester contracts are there?
There are traditional annuity insurances, unit-linked annuities, bank savings plans, investment savings plans, and the so-called Wohn-Riester for owner-occupied residential property.
What are the government subsidies for the Riester pension?
The annual basic allowance is 175 euros. For children born before 2008, there is a child allowance of 185 euros, and for children born from 2008 onwards, it's 300 euros. Young professionals under the age of 25 receive a one-time payment of 200 euros.
Can I also have the Riester savings paid out all at once?
At the beginning of the retirement phase, you can withdraw up to 30 percent of the accumulated capital in one lump sum. The remaining amount is then paid out as a lifelong monthly pension.
What happens to my Riester pension if I become unemployed?
The accumulated capital in a Riester contract is protected from seizure during the savings phase and is not counted towards the exempt assets when receiving Bürgergeld (formerly known as Hartz IV).
Do I have to pay taxes on the Riester pension?
During the accumulation phase, the contributions and allowances can be claimed as special expenses for tax purposes, which can lead to tax savings. During the payout phase, the pension benefits must be taxed at the personal income tax rate (deferred taxation).
