State-subsidised securityRiester pension

The Riester pension is a special case within private pension insurance. For many, it represents an entry into private retirement provision. Anyone who invests four percent of their gross annual salary in a subsidized, private pension scheme receives an additional four percent each year from the state: €175 (married couple, double) plus €185 per child. For children born after 2008, the Riester allowance is even €300 per child. Insured persons under the age of 25 also receive a one-off state special allowance of €200.

The Riester pension is very good choice for parents or for investors with low incomes. Due to the high level of tax incentives, however, it is also attractive for higher-income employees and civil servants.

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The basics

Riester pension: attractive and secure

The Riester pension is a state-subsidised private pension scheme. With its advantages, you can close your personal pension gap.

Here’s how the Riester pension works: During your active working life, you pay contributions into a private pension contract, bank savings plan or fund. As an extra, you get growing state allowances and tax breaks. Later, you will receive life-long monthly benefits. These are paid in the form of a pension or a disbursement plan. A partial disbursement of up to 30 percent of the retirement assets is possible. Up to twelve monthly pension payments can also be paid out in one amount as an annual pension.

High returns through bonuses and guaranteed interest rates

With the statutory pension, the contributions of insured persons flow directly to pensioners the following month. On the other hand, contributions to private pension schemes, including state allowances, will accrue. Later, they are paid back to you, including a guaranteed interest rate. The state subsidy usually boosts the yield of the Riester pension above the interest rate for other investments.

The Riester pension is aimed at employees and civil servants

The Riester pension is particularly suitable for employees and their spouses, who want to strengthen their financial old age provision. The Rürup pension is more interesting for self-employed persons and freelancers due to special tax deductions.

Subsidy amounts

State allowances and tax advantages

The subsidy of the Riester pension has two parts: State allowances are credited every year. In addition, there is usually a tax advantage, as part the special expenses deduction on the income tax return.

Riester allowances

The allowances consist of a basic allowance and a child allowance. The basic allowance is €175. €185 is paid for children born before 2008. The allowance for children born in 2008 or later is €300 per child. €2,100 per year is tax deductible. To do this, the tax office checks whether there is a tax advantage that exceeds the subsidy.

€200 bonus for young Riester savers

To make the Riester pension more attractive for young people, the state provides an incentive for those under 25, a one-off sign-up premium of €200.

Subsidy up to more than 90 percent

Depending on income and marital status, the share of subsidies in the savings benefit ranges from approximately 30 percent to over 90 percent. The higher the number of children and the lower the income, the greater the share of state support.

Who is subsidised?

Riester subsidy for all employees

All employees with statutory pension insurance are entitled to bonuses and tax advantages for their Riester contract. In addition, civil servants, soldiers and civil service personnel, persons on parental leave, persons voluntarily covered by statutory pension insurance, those in marginal employment and the unemployed.

The spouses of employees who are not subject to pension insurance obligations also receive state subsidies – if they decide for their own pension scheme contract.

As a self-employed person or freelancer, a person is only entitled to state subsidy if the spouse is an employee subject to compulsory insurance and has his or her own Riester pension.

Limited flexibility

Lawmakers have developed guidelines for Riester products. This is intended to ensure that the subsidy is really used in the interest of a reliable pension provision.

The private pension is secure

Pay-out of the accumulated capital must occur as a lifelong monthly pension or as a payment plan with lifelong benefits.You can have a maximum of 30 percent paid out as a capital sum in one instalment.The pension is not paid until you reach the statutory retirement age (between 65 and 67, depending on year of birth). In the event of early retirement, no earlier than 60 (contract entered into before 31/12/2011), otherwise no earlier than age 62. See also under point: “The pension phase”.

At the beginning of the disbursement, the paid-in contributions must be completely available. Thus this pension capital must also be protected against attachments and assignments.

Riester providers provide information annually

The investor receives information on account balance, use of capital, costs and income at least annually. The fees for entering into the contract and for operation must be spread out over a five-year period.

If the person entitled to the pension dies, the pension claim is transferable to third parties. During the pay-in phase, the investor has the right to change the provider. Existing contracts can also be included in the state subsidy – provided that the guidelines cited above are integrated into the “old contract”.

Personal provision is important

If you want to be provided for, you must make your own provisions

The statutory pension is in a state of crisis. Fewer and fewer insured people are paying in for more and more pensioners. The end of this development is not in sight. Personal responsibility is becoming ever more important here. If you want to enjoy your retirement without financial worry, you must make your own provisions in good time.

Lifelong pension – sponsored by father state

The Riester pension is a form of private old-age provision. This private provision also includes endowment insurance, savings deposits, securities or residential property.

The state promotes private pension schemes through special subsidies and tax breaks. With the statutory pension, the payments of insured persons flow directly to pensioners the following month. Contributions to private pension contracts, on the other hand, are accrued – including the state allowances. They are paid out later, plus compound interest, as lifelong pensions.

The contribution phase

Full allowances and tax benefits

You will receive full allowances and tax benefits if you pay a certain portion of your salary into your Riester contract.

The person’s own contribution (including allowances) is four percent of the previous year’s income – at least €60 per year.

Minimum co-payment €60

Particularly for people with a low income and children, the allowances can be so high that theoretically no contributions of their own would have to be paid. However, since the state subsidy is only granted if the insured person also makes a financial contribution, a minimum contribution of €60 per year has been set.

Flexible pay-in – benefit from special payments from the boss

As a customer, you can pay in flexibly – as your financial situation allows. However, regular contributions are recommended for an optimal pension provision.

Tip: Use your employer’s special payments at the end of the year to finance your Riester pension.

The pension phase

Pension benefits possible starting at age 60

As a rule, payments from the Riester pension scheme start at the same time as payments start with the statutory old-age pension. Currently, this is after reaching the age of 65.

As an insured person, however, you can apply for benefits, starting at age 60 (contract entered into before 31/12/2011 – otherwise at the age of 62, at the earliest). In this case, the monthly pension payments are lower than they are at commencement of retirement at the statutory retirement age (between 65 and 67 depending on year of birth). A partial disbursement of up to 30 percent of retirement assets is possible at the start of pension payment. In addition, up to twelve monthly pension payments can be paid out in one amount as an annual pension.

Lower tax burden in old age

Riester contracts offer tax benefits, even during the contribution phase. Consequently, the subsequent payments are taxed at the individual rate. The tax burden is usually lower than it is in the employment phase – since the personal tax rate is usually higher during a person’s active professional life.

The right contract

It is not easy to find your way through the maze of pension products that are offered. Would you like to close your personal pension gap with a Riester pension? Here you will find a large number of suppliers with a large number of different product offerings.

Optimal promotion through competent advice

First of all, it is important to make optimum use of state subsidies when choosing the right product. A thorough consultation will help you.

Riester: Hartz-4-solid

Riester pension – you are also protected in the event of unemployment

Anyone who becomes unemployed for a longer period of time may be obligated to defray his or her living expenses first from the dissolution of existing savings deposits. Only then is there a right to unemployment benefit II.

This applies to bank deposits, securities accounts and, to a limited extent, endowment policies. By contrast, state-subsidised old-age provision is a major exception: Claims under Riester contracts are protected against premature liquidation in the event of unemployment, provided that the Riester contracts have been structured with subsidy.

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