Riester Rente

MW-Expat - Pension Savings

The Government pays a yearly subsidy of €175 per person and €300 for each child (€185 for children born before 2008). You have to be paying contributions into the statutory pension scheme to be eligible for Riester Rente. To get the full subsidy you have to pay 4% of your gross earnings into the scheme up to a maximum of €2,100/year. The premiums can be offset against tax and are therefore taxed when payed out. This has the advantage that taxes are normally far lower as a pensioner because the income is not so high. The earliest pay out opportunity is at age 63. It will pay out as a lifelong pension, but you can draw up to 30% of the saved amount as a capital payment. Most of the tariffs offered by the different insurance companies are fund savings based, offering a higher return in the current low interest market. It offers the added bonus that all the premiums and subsidies that are paid in are guaranteed, meaning that if the fund loses money, you do not.

Key Features

  • The Riester-Rente was introduced in 2002.
  • Depending on what is most beneficial for the individual, either the tax rebate or the subsidy will be used by the tax office in their yearly income tax calculations.
  • Everybody paying into the state pension scheme is entitled to a Riester-Rente. People who are not entitled but are, however, married to or the registered partner of someone who is, are also eligible for a Riester policy. They will receive the full subsidy but may only pay €120 per year in contributions.
  • The government also subsidizes the contributions. To obtain the full subsidy, 4% of the gross income has to be paid into the scheme. The subsidies provided count towards the 4%. A maximum of €2,100 per year can be paid into the scheme and the full €2,100 (including the subsidy) can be offset against tax.
  • The full subsidy is €175/year for adults and €300/year for children born after 2008. For children born before 2008 the subsidy is €185/year. The subsidy is always immediately used to lower the monthly premium.
  • It is necessary to submit a tax return every year to receive the full benefits available.
  • The monthly pension received is taxable at the pensioner’s personal tax rate. As a pensioner in Germany you usually have lower tax rates compared to when you are working.
  • Most Riester-Rente products are funds-based. The products themselves offer a wide range of funds to choose from including managed portfolios. The advantage that insurance based products have is that you can switch funds up to 12 times a year free of charge and that there are no taxes to be paid on the profits until the pension is drawn.
  • The contributions including the subsidies are guaranteed to 100%.
  • Capital cannot be borrowed against a Riester-Rente.
  • The minimum duration of the contract should be at least 12 years.
  • It is possible to have a 30% capitalization of the balance at the start of the pension draw-down phase. The capitalization affects taxes in the year it is drawn.
  • It is possible at any time to withdraw capital if it is to finance a house that will be occupied by the Riester-Rente policy holder (Wohnriester).
  • A pension can be first drawn at the age of 63.
  • The pension is guaranteed for the rest of the beneficiary’s life.
  • In case of death during the paying-in phase the amassed amount will be paid into the Riester policy of the partner of the deceased. It is also possible to receive the amassed capital but without subsidies and tax benefits.
  • In case of death whilst drawing the pension, the pension will be paid out to the beneficiary for the arranged amount of time (Garantiezeit). The guaranteed payout time can vary between 5 and 18 years. Obviously it has a small affect on the amount of monthly pension that can be drawn. It is also possible to receive the remaining capital but without subsidies and tax benefits.
  • In the case of death only the spouse (or registered partner) or the children, until they have finished their first education (max. up to the age of 25) may be the beneficiaries.
  • Should the policy holder leave Germany, his Riester-Rente policy will be set to non- contributory. The balance will still work for the policy holder as his investment in funds continues.
  • The Riester Rente should only be used by people planning on retiring in the EU. If this is not the case then the subsidies and tax benefits will be lost.
  • Ideally the policy holder should retain a post forwarding address in Germany.
  • To draw down the pension the policy holder will need a bank account in Germany.
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