Pension: Private pension provision is poor

It's been clear for a long time that the statutory pension isn't enough to maintain even a reasonable standard of living in old age. That's why politicians advocated additional private pension provision more than twenty years ago – and with the Riester pension, they launched an offer that they are subsidizing to the tune of billions of euros. The idea was that people's retirement provision should rest on three pillars: the statutory pension, occupational pensions, and private pension provision. But private pension provision isn't a pillar; at best, it's a thin support.

This is demonstrated by the federal government's response to a query from the Green Party parliamentary group, which was made available to the Süddeutsche Zeitung . According to the report, income from private pensions accounts for an average of only around six percent of gross income in old age. This share includes payments from Riester contracts, other private pension and life insurance policies, as well as interest income and income from renting and leasing. One-off payments, such as those from endowment life insurance policies, are not included. This means that Riester pensions, for their part, account for only a portion of the approximately six percent.

"The Riester pension does not protect against old-age poverty. It plays only a marginal role in retirement provision, especially for those on low and middle incomes," says Stefan Schmidt, a Green Party member of the Bundestag. He is his parliamentary group's rapporteur for private pension provision in the Finance Committee. Schmidt accuses the coalition of taking an inordinately long time to make adjustments to private pension provision and calls for rapid reform.

The Riester pension was introduced in 2002 by the then red-green federal government to offset the declining pension level. Citizens were supposed to save for their old age voluntarily, and the government was supposed to provide incentives in the form of generous allowances and tax breaks. According to the federal government, however, the number of Riester contracts continues to decline: after peaking in 2017 with 16.6 million contracts, the number is now just under 15 million. Many employees have also stopped making payments into their Riester contracts—around 20 to 25 percent, according to estimates by the Ministry of Finance. This continues the trend of people saving less through Riester contracts despite the subsidies .

The response also reveals how little the federal government knows about Riester contracts, even though it subsidizes them with large sums every year, with a good 3.5 billion euros in 2022 alone. The government writes that there is no information available on the costs of Riester contracts, such as for conclusion, sales, and administration, nor on the returns.

When Riester and private pension provision are to be overhauled also remains open. It is simply stated that they are working on "a rapid implementation of the reform of private pension provision agreed in the coalition agreement." Furthermore, in its response, the federal government refers to a pension commission, which is to examine "a new key figure for an overall level of provision across all three pension pillars" by the middle of the legislative period. This can only be understood to mean that no concrete measures will be implemented beforehand, says Green Party politician Schmidt. "This will delay the reform by at least two years - even though the two previous governments already discussed a Riester reform intensively and at length." Time is considered an important factor in pension provision because interest and compound interest can significantly increase assets for old age .