GERMANY – The government has dismissed as “groundless” a court action by the European Commission against Germany over its so-called Riester-Rente, a tax-privileged private pension.

Yesterday, the Commission said it would take Germany to the European Court of Justice on the grounds that the Riester pension unfairly discriminated against EU citizens who work in Germany but do not have their residence there.

The crux of the Commission’s argument is that while EU citizens working in Germany must pay social taxes, they are not eligible for tax breaks related to the Riester pension.

The Commission also finds fault with a planned provision whereby Riester pension savings may only be employed in the purchase of property in Germany.

A final problem, according to the Commission, is that workers who have drawn subsidies under Riester must pay these subsidies back once they no longer are liable to pay income tax in Germany.

“I wholeheartedly welcome any efforts among EU member-states to promote private retirement saving, but it can’t be done in a discriminatory way,” said László Kovács, the EU commissioner for taxes and duties.

However, the German finance ministry shot back at the Commission charging that its legal action against the Riester pension was “groundless”.

The ministry stressed that it was simply not true that the pension discriminated against guest workers. It noted that as long as workers were liable to pay income tax in Germany, they would be eligible for the pension and the tax breaks related to it.

The ministry also clarified that repayment of subsidies under Riester was required only when savings from the pension were withdrawn and not before then.

”Finally, the government does not share the doubts among the European Commission that the possibility of using part of the savings for the purchase of property in Germany conflicts with EU law,” the ministry said.

In summary, “the Riester pension is completely compatible with EU law,” it added.

The Commission’s legal complaint against Germany now goes to the ECJ in Luxembourg, which could take up to two years to reach a final ruling. If the ECJ rules against Germany, the member-state may face fines.