Riester-rente: Suitability in Question for Low Earners

By: Mark Lauterwein

Is the Riester-Rente set to disappoint Germany's low earners who had hoped to supplement their meagre state pensions? The truth of the matter is that banks and insurance providers are often silent on the fact that carefully accumulated riester fund savers are "rewarded" with benefit cuts when he reaches pensionable age.

A study by the ARD Magazine Monitor quotes directly from government papers:

"The fewer years a Riester saver has paid contributions and the smaller these contributions are, the less worthwhile participation in the Riester-Rente becomes."

Monitor clarifies the reasoning behind this: the government of the Federal Republic plans to reduce the fundamental benefit for pensioners, Grundsicherung, by exactly the amount of provided by a Riester-Rente, so that a supplementary pension becomes, in effect, a top-up scheme that does not reward savers working hard to secure a viable income for their retirement.

Pensions and government advisor Winfried Schmahl believes that it will not only be current welfare recipients (Hartz IV i.e. combined unemployment and living allowance) who will be affected by the proposed reforms. "Millions will have to come to terms with the fact that their Riester-savings will dissipate into thin air". For years the level of state pension insurance has been declining in real terms so any legal ruling to connect this to Riester payments would have serious consequences.

Critical reaction to the Monitor article has been forthcoming from the DRV (Association German Pension Insurers). They say that the case studies in the articles have not been representative and have been selected so as to skew the slant of the piece in favour of prejudiced conclusions. The DRV highlighted the fact that none of the case studies took account of any additional sources of income such as salary, other insurance or interest payments. They say that such miscellaneous sources of income would in fact supplement the pensions of over 65% of pensioners in Germany. The DRV concludes thus," the general statement that the Riester-Rente is of no value to the typical saver is not meaningful at all. " Furthermore, they state the Riester-Rente allows those who do not wish to purchase additional pension cover to build up a pension fund through relatively manageable contributions.

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