For many years, the Riester pension was one of the most important forms of private retirement provision in Germany. Over time, however, criticism grew louder and louder: high costs, complicated rules and low returns. That’s why the government is now planning a reform of the system, the so‑called Riester 2.0, with a completely new solution – the so‑called retirement savings depot, i.e. a state‑subsidised investment account. The new model is intended to be simpler, cheaper and more flexible and, above all, to make it possible to invest the money in funds and ETFs, among other things. Take a look at what the Riester reform is about, who can benefit from it and whether it is worth restructuring your private retirement provision in Germany.
Will the new retirement savings depot really enable higher returns for your pension?
Many people working in Germany have felt for years that the Riester pension has not lived up to the expectations placed in it. The system was complicated, often expensive and – most importantly – offered only very limited investment options, as most products had to provide a guarantee of the contributions paid in. In practice, this meant that the money predominantly flowed into conservative financial instruments that generated relatively low returns over the long term. The reform known as Riester 2.0 is intended to address these problems. The new model of private retirement provision is based on the concept of a retirement savings depot – a special, state‑subsidised investment account that is intended to allow investments in various capital market instruments, including investment funds and potentially ETFs.
From the perspective of someone working in Germany, one thing is particularly important: the fundamental philosophy of the entire system is changing. Instead of rigid capital protection that limited potential returns, there will be a model geared towards long‑term investments in the capital markets. This does mean stronger short‑term fluctuations, but it opens up significantly greater opportunities for real growth in retirement assets. The reform also envisages simpler rules, lower costs and more competition between banks, funds and investment platforms that can offer such products. For many, this means above all one thing: if the system is introduced in the planned form, private pensions in Germany can finally become a real tool for long‑term capital accumulation – and not just a symbolic supplement to the state pension.
The end of the old Riester pension? How Riester 2.0 works – and whether it’s worth transferring your savings
Many people are currently asking themselves a very practical question: Will the old Riester contracts continue to exist and what will happen to the money already saved? According to the reform plans, existing contracts will remain valid, meaning they will neither be automatically terminated nor transferred into the new system. People with such contracts enjoy what is known as vested rights, i.e. the option to continue saving under the previous rules. At the same time, the new regulations are to allow a voluntary switch to the new model if this proves to be more advantageous.
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However, this is not a decision that should be made hastily. Although it should be possible to transfer the funds into a retirement savings depot, this will be an irreversible decision. That is why your personal financial situation must be analysed thoroughly before making the switch. In practice, this means checking several factors – the amount of state allowances received so far, the investment structure, possible costs and the expected return in the new system. In some cases, especially for families with several children, the old model may remain attractive due to the high child allowances. For younger people or those just starting their careers, on the other hand, Riester 2.0 can represent a much more transparent and flexible form of building up capital for retirement.
What does it cost to switch to the retirement savings depot?
The conversion of an existing Riester contract into a retirement savings depot is intended to be cost‑neutral in most cases. If the contract has already been running for at least five years, the transfer of the funds into the new model is to be free of charge. If the contract is younger, the financial institution may charge a one‑off fee of up to 150 euros. The same rule is to apply if you change the provider of your retirement savings depot. However, it is important to bear in mind that the final conditions and any fees will depend on the final version of the law and the legislator’s detailed regulations.
ETF instead of insurance – does Riester 2.0 change the rules of the game for retirement provision?
One of the most visible changes of the reform is the opening of the retirement system to investments in capital market instruments. In classic Riester products, insurance solutions dominated, which had to guarantee repayment of the contributions paid in. It was precisely this guarantee that meant that the majority of the money flowed into very safe but low‑yield financial instruments. In the new model, the approach is fundamentally different – the state continues to subsidise saving but no longer requires a full capital guarantee. This makes it possible to invest, for example, in global index funds or bonds.
For someone putting money aside for the future, this means a completely different potential for building capital. Investments in broadly diversified ETFs make it possible to benefit from the long‑term growth of the global economy, which can significantly increase the value of accumulated assets over several decades. The reform is also intended to reduce the costs of such products through statutory fee caps and more competition between financial institutions. In practice, this means that private retirement provision in Germany could in future resemble the investment systems used in other developed countries, where part of old‑age security is built up precisely through investments in the capital markets.
New pension with state support – find out how much you can gain with Riester 2.0
One of the key elements of the reform remains direct financial support from the state. In the new model, the subsidies are to be simpler and more transparent than in the previous Riester system. The draft reform provides for a system of state allowances linked to the amount of annual payments into the retirement savings account. This means that part of the money paid into the retirement savings depot is to be topped up with additional funds from the state budget – increasing the value of the savings already during the accumulation phase.
In addition to the basic allowance, the system is to provide additional bonuses for certain groups, including families with children or young professionals. In practice, this means that part of the retirement capital is built up directly from public funds, which significantly increases the efficiency of long‑term saving. It should be borne in mind that the state allowance acts like an additional return at the start of the investment, since every payment is automatically increased by funds from the budget. This is precisely the mechanism that ensures that private pensions in Germany – especially with regular saving – can generate significantly more capital over the long term than simply putting money aside without state support.
The planned reform stipulates that state subsidies for the retirement savings depot will depend on the amount of annual contributions. If you pay in up to 1,200 euros over the course of a year, the state will add 30 cents for every euro you contribute, i.e. a maximum of 360 euros per year. For higher contributions – up to the limit of 1,800 euros a year – the subsidy will be 20 cents for each additional euro, allowing for a further 120 euros, meaning a total of up to 480 euros in support per year. The minimum contribution required to qualify for the subsidy is to be 120 euros per year. People who start saving before the age of 25 will also receive a one‑off starting bonus of 200 euros. According to the draft reform, from 2029 the subsidy for the first 1,200 euros is to rise to 35 cents per euro, which would increase the maximum state support to up to 540 euros per year.
Do you already have a Riester pension? Find out whether switching to Riester 2.0 is really worth it
For people who have been saving within the Riester pension system for years, the reform can represent both an opportunity and a challenge. On the one hand, the new solutions offer more flexibility in investing and potentially higher returns. On the other hand, any change requires a detailed analysis of the existing contract terms. Particularly important here are the amount of accumulated capital, the number of state allowances received and the cost structure of the old contract. In some cases, it may make sense to stay with the existing contract – especially if it provides attractive family bonuses or a guaranteed payout in the future.
On the other hand, many analyses indicate that the new system can be particularly attractive for younger people who still have several decades ahead of them to build up capital. A long investment horizon favours strategies based on the capital markets, as time works in the investor’s favour through the compound interest effect. It is therefore worth checking whether the existing Riester contract is not slowing down the growth of your savings through high fees or a very conservative investment strategy. In many cases, only by comparing these factors can you realistically assess whether switching to Riester 2.0 will actually improve your future financial situation in retirement.
Riester 2.0 in practice – who benefits from the new retirement savings depot and who should stay with the old system?
Although the reform of private retirement provision in Germany is being discussed intensively, it should be borne in mind that the new system will not be ideal for every taxpayer or employee. Those likely to benefit most are people who save regularly, have stable incomes and want to invest over the long term for decades. In such cases, the possibility of investing in index funds or other capital market instruments can significantly increase the value of accumulated capital. At the same time, the reform aims to simplify the system and reduce the costs of financial products – a point that was one of the main criticisms of the Riester pension in the past.
On the other hand, there are also groups for whom it may seem safer to stick with the previous solutions. This applies above all to people who are very conservative financially or who benefit from high family allowances in the old system. The reform does provide for different product variants – from relatively safe to more dynamic, opportunity‑oriented investments – but each variant has a different risk and return profile. Before you decide on a particular form of retirement provision, you should therefore carefully analyse your income situation, age, family circumstances and planned retirement date. Only on this basis can you consciously choose a model that truly supports the build‑up of stable capital for the future.
If you work in Germany and are thinking about your financial security for the future, you should also remember your annual tax return in Germany. In many cases, a refund of overpaid taxes is possible, which can provide additional support for your household budget or your savings. To do this quickly and conveniently, you can use the Taxando app, which allows you to easily submit your German tax return online and check whether you are entitled to a tax refund.
Maciej Szewczyk
He gained experience as a consultant on IT projects for many international companies. In 2017, he founded the startup taxando GmbH, where he developed the innovative tax app Taxando, which simplifies the filing of annual tax returns.
Maciej Szewczyk combines technological expertise with in-depth knowledge of tax regulations, making him an expert in his field. In his private life, he is a happy husband and father and lives with his family in Berlin.
