German DekaBank has decided to “completely” exit the Riester-Rente market from 1 June. DekaBank has taken a further step to withdraw from Riester-Rente products because “existing guarantee makes it increasingly difficult for savers in the current low interest rate environment to achieve a return” on contributions paid, it said in a statement.
Providers of Riester-Rente contracts have to pay out at least the amount of contribution paid as guarantee at the end of the savings phase.
Under the new policy, DekaBank will stop offering new contracts under its Deka-ZukunftsPlan (Future Plan) in the classic and select investment options from June, it said. The plan combines opportunities for returns by also investing in equities with a special security component and lifelong pension benefits.
With the classic option, investments are run through four mixed funds with total asset of €2.94bn, and a bond fund as a defensive option with assets of €494.46m.
The select option is invested through three equity funds with assets totalling €13.26bn, three bond funds with assets totalling €6.83bn, and a bond fund as a conservative option with assets of €494.46m, according to the group.
DekaBank had already discontinued the ZukunftsPlan to customers from 1 November last year, while the new business of the Deka-BonusRente was suspended on 1 August 2017.
“It is important to take advantage of opportunities on the capital market […] especially with long-term investments” to fund pensions, said Frank Kalter, head of sales management and marketing at DekaBank.
DekaBank will therefore int he future concentrate on guarantee-free pension solutions such as securities savings plans, it said. The group currently manages over six million securities savings plans.
“The aim is to offer our customers transparent and flexible pension solutions in times of low interest rates and rising inflation,” Kalter added.
The previous government led by Angela Merkel had started talks with providers of Riester-Rente products, consumer associations and social partners to reform private old-age provisions, but the grand coalition CDU/CSU and SPD eventually failed to deliver changes.
The finance ministry, at the time led by now chancellor Olaf Scholz, was also involved with insurance companies and banks to reform the country’s privately funded pension system.
The reform appears to be urgent as the number of Riester-Rente contracts has stagnated over the past few years, and stood at 10.6 million at the end of the third quarter last year, according to figures released by the Federal Ministry of Labour and Social Affairs.
The new government formed by Social Democrats (SPD), Greens and Free Democrats (FDP) has promised to “fundamentally reform” the private pension system in the coalition agreement.
It will explore the possibility of legally offering investment products with higher returns than Riester-Rente, it added in the agreement.
DekaBank supports reform proposals promoting private investment products without guarantees, “savers with low incomes in particular would benefit from it,” Kalter said.