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German insurance association defends Riester-Rente amid failure claims

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Germany’s state-subsidised private pension, the Riester-Rente, is not a failed initiative and should be made more attractive rather than abandoned, according to the head of Germany’s insurance association.

Alexander Erdland, president at the GDV, warned against backing off on the reforms that introduced the Riester-Rente in 2002, rejecting claims the third-pillar pension product had failed.

He acknowledged that the Riester pension had failed to live up to all the expectations placed on it on its introduction, and that it had lost momentum in recent years.

However, he noted that 16m people had opted for a Riester-Rente, arguing that no other voluntary pension saving system in the world came close to this level of participation.

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“The Riester-Rente is a good product, which can get even better,” said Erdland.

“Anyone talking down the Riester calls into doubt the reform of 2002 and threatens the viability of our pension system.” 

He dismissed what he said were preconceptions about the Riester-Rente’s unattractiveness in the prevailing low-interest-rate environment, defending the returns available via Riester products, and he called for more, not less, private pension provision in light of low interest rates.

“Pension products like Riester are not obsolescent – they are the future,” he said, calling for the existing Riester contracts (16m) to be doubled.

These need to be made more attractive and accessible to a broader range of people, according to Erdland.

He proposed changes, such as making the private pension product available for self-employed individuals and the non-employed, and carving out of social security an allowance for personal pension savings.

Insurers can also play a role in making it more attractive to save in a Riester pension product, said Erdland, noting that insurance companies were working on automation to lower administration costs.

The Riester-Rente was introduced through reforms put in place in 2002, but some politicians have suggested recently that the vehicle has been a failure.

The claims are being made as the German government tries to see through comprehensive pension reform, with various stakeholders setting out their respective positions as part of “Dialog Alterssicherung”, the wide-ranging debate on reform that the government has launched.

Germany’s largest trade union, IG Metall, for example, recently presented its own reform proposal, focused on strengthening the first pillar and dismissive of private pensions.

The European Commission last week launched a public consultation on a potential EU framework for personal pensions and in this highlighted Germany as one of few member states that has achieved a wider take-up of personal pensions. 

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