Riester pension and private pension insurance: Make the most of government incentives and private provision
09.05.25
4
Minutes
Katrin Straub
Managing Director at nextsure
The state pension alone is often not enough to maintain your standard of living in retirement. Find out how the Riester pension can complement your private pension insurance and what advantages government subsidies offer. Secure your financial future now.
The topic in brief and concise terms
The Riester pension is a state-subsidised private retirement provision that complements the statutory pension through allowances and tax advantages.
In particular, families with children and low-income earners benefit from high subsidy rates for the Riester pension.
At the start of the payout phase, up to 30 per cent of the Riester capital can be withdrawn as a one-off payment, and the rest is paid out as a lifelong annuity.
Riester pension: Understanding the basics of state subsidies
The Riester pension was introduced in 2002 to strengthen private retirement provision. It complements the statutory pension insurance with state subsidies and possible tax advantages. The aim is to reduce the pension gap created by declining pension levels. This form of private pension insurance is an important component of retirement provision in Germany.
Those entitled to the subsidy include mandatory members of the statutory pension insurance scheme and civil servants. Spouses can also benefit under certain conditions, even if they only pay a minimum contribution of €60 per year. The Riester pension is therefore accessible to a broad range of people. State support makes it particularly attractive.
Maximise government support: allowances and tax advantages of the Riester pension
State support for the Riester pension consists of allowances and tax benefits. 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 onwards). Career starters under 25 receive a one-off bonus of 200 euros.
To receive the full allowances, four per cent of the previous year's gross income subject to pension insurance contributions must be paid in. The maximum subsidised amount is 2,100 euros per year, including the allowances. Contributions and allowances can be claimed as special expenses in the tax return. The tax office then checks, in a favourable tax assessment, 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 advantageous for families with children and low earners. The children's allowances significantly reduce the personal contribution. A family with two children born after 2008 can receive up to €775 in allowances each year (€175 basic allowance plus two lots of €300 children's allowance). Almost 40 per cent of Riester savers earn less than €20,000 a year.
Higher earners can also benefit, especially through the special expenses deduction. Singles without children often benefit more from the tax savings than from the allowances. The Riester pension therefore offers financial incentives for different life situations. However, an individual assessment of one’s personal situation is always advisable.
Riester pension contract types: from classic to unit-linked
There are various investment options for the Riester pension, each offering different return opportunities and security aspects. Here are the most common variants:
Classic Riester pension insurance policies: These offer a guaranteed minimum pension and often profit participation. Security is the priority here; the minimum pension is already known when the contract is concluded.
Unit-linked Riester pension insurance policies: Here, parts of the capital are invested in investment funds, which enables higher return opportunities in the event of favourable stock market performance. A unit-linked pension insurance policy can be attractive.
Riester bank savings plans: The balance earns interest and is paid into a payout plan. For pension payments from the age of 85, an additional pension insurance policy is often taken out.
Riester fund savings plans: Similar to unit-linked insurance policies, they offer return opportunities through fund investments. The contribution guarantee applies at the end of the accumulation phase.
Home Riester: The subsidy can be used for the purchase, construction or repayment of debt on 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 in and allowances are available. The initial costs must be spread over at least five years.
Practical examples and calculations: How the funding affects you
Let’s take an employee with a gross annual income of 40,000 euros and two children (born in 2010 and 2012). Her minimum contribution for the full subsidy is four per cent of 40,000 euros, i.e. 1,600 euros. The allowances are deducted from this: 175 euros basic allowance plus 300 euros child allowance twice gives 775 euros. She would therefore have to pay in 825 euros herself (1,600 euros minus 775 euros) in order to receive the full allowances. Her total cost for retirement provision is thus 1,600 euros, of which the state covers 775 euros.
A young professional entrant, 23 years old, with an income of 30,000 euros, must contribute 1,200 euros (four per cent of 30,000 euros) less 175 euros basic allowance and 200 euros young-professional bonus. His own contribution would be 825 euros. The subsidy rate can be over 50 per cent for low-income earners with children. These examples illustrate the considerable financial advantage of state support for private retirement provision.
Expert depth: legal foundations and recent rulings on the Riester pension
The statutory basis for the Riester pension is set out in the Income Tax Act (EStG), in particular in Section 10a and Sections 79 et seq. of the EStG. The 2002 Old-Age Assets Act (AVmG) introduced the incentive. Riester products are certified by the Federal Central Tax Office and ensure that certain criteria are met, such as the guarantee of the contributions paid in and allowances at the start of retirement. Payments may begin at age 62 at the earliest for contracts from 2012 onwards.
Recent rulings often concern the transparency of contract clauses or the treatment of costs. It is important to keep informed about the current legal situation. Our expert tip: when entering into a contract, make sure all costs and fees are clearly presented. The federal government is also planning reforms to make private retirement provision more attractive, which could also affect the Riester pension. [2025-05-22] An overview of retirement provision stories helps with understanding. The deferred taxation of the Riester pension means that payments in retirement are taxed at your personal tax rate.
At the start of the payout phase, up to 30 per cent of the capital accumulated can be withdrawn as a one-off payment. The remaining amount is paid out as a lifelong monthly pension. This flexibility makes it possible to make larger purchases when retirement begins. Cancelling the contract before retirement starts is possible, but usually results in the loss of government bonuses and tax advantages.
An alternative to cancellation is making the contract contribution-free. The funding received so far remains in place. The capital accumulated is protected during the savings phase from attachment and being counted towards citizen's allowance. The differences compared with other retirement provision options are relevant here. Inheritance rights are limited; however, the balance can be transferred to the spouse's Riester contract without affecting eligibility for support.
Costs and Returns: A Critical Look at Riester Contracts
The costs of Riester contracts can vary depending on the provider and type of contract. Entry and administration costs reduce returns. [2025-06-05] By law, providers are required to disclose all costs transparently. [2025-06-05] The effective costs show what percentage of the return is used for costs. [2025-06-05]
The contribution guarantee, which ensures that at least the contributions paid in and bonuses are available at the start of retirement, often leads to low-risk investments. This can limit return potential. However, the state bonuses often represent the main factor for returns, especially when market interest rates are low. [.] Comparing various alternatives such as the Rürup pension can be worthwhile. If you are dissatisfied with an existing contract, switching providers is an option, although transfer costs may apply. [2025-03-08]
nextsure: Your partner for private pension insurance
The Riester pension can be a valuable component of your private retirement provision to close gaps in income in later life. Government support through allowances and tax benefits makes it particularly attractive for families and lower-income earners. Careful assessment of the individual situation and comparison of the various contract types are crucial. nextsure supports you as a digital insurance portal in finding the right solution for your private pension insurance.
Request an individual risk analysis now: have your insurance situation checked free of charge and receive concrete recommendations for optimisation.
More useful links
Federal Ministry of Finance provides statistics on Riester subsidies up to 2023.
German Pension Insurance provides information on the Riester pension.
Consumer Advice Centre 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.
Federal Ministry of Finance publishes statistics on Riester payouts in 2023.
BMAS (Federal Ministry of Labour and Social Affairs) provides statistics on Riester contracts.
Consumer Advice Centre explains for whom the Riester pension can be worthwhile.
Federal Ministry of Finance offers the final report of the focus group on private retirement provision.
FAQ
Who is a Riester pension most worthwhile for?
The Riester pension is particularly worthwhile for families with children because of the child allowances, and for low earners, as the state subsidy can account for a large share of the savings contribution. New entrants to the labour market also benefit from a one-off bonus.
What types of Riester contracts are there?
There are traditional pension insurance policies, unit-linked pension insurance policies, bank savings plans, fund savings plans and the so-called Wohn-Riester for owner-occupied property.
How high are the state 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; for children born in 2008 or later, 300 euros. Career starters under 25 receive a one-off payment of 200 euros.
Can I have the Riester balance paid out in one lump sum?
At the beginning of the retirement phase, you can have up to 30 percent of the saved capital paid out 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 capital accumulated in a Riester contract is protected against seizure during the savings phase and is not counted as exempt assets when receiving Bürgergeld (formerly Hartz IV).
Do I have to pay tax on my Riester pension?
During the savings phase, the contributions and allowances can be claimed for tax purposes as special expenses, which can lead to tax savings. During the payout phase, the pension benefits must be taxed at the individual's personal income tax rate (deferred taxation).
