The German ministry of finance is working behind the scenes with insurance companies and banks to evaluate possible changes to the country’s the privately funded pension system, Riester-Rente, Carsten Brodesser, member of the finance committee of the German Parliament and member of parliament (MP) for the CDU/CSU group, told IPE.
“The point is that the Riester-Rente stagnates for different reasons,” Brodesser said, adding that such stagnation creates the condition for the coalition parties to review the model’s weak points.
To reform the third-pillar Riester private pension, introduced in 2002, state-subsidised with tax privileges, different approaches are on the table.
“There are thoughts in the finance ministry to change it, but it is not clear which models are taken into consideration. We think that after the summer break discussions will pick up again,” he said.
The Union, the alliance between the Christian Democratic Union CDU and the Bavarian Christian Social Union, CSU, proposes a standard product without a high burden of administrative costs, that can be finalised online, for example, and to simplify the structure of the system to receive the full contribution.
“The ministry of finance evaluates these points, and we have also exchanged opinions with some providers that find the proposals essentially positive,” the MP added.
He believes it is possible to build political support for a change, as different committees work in parliament to make the Riester-Rente more attractive, he said.
The final report of the Rentenkommission, a panel with representatives of the governing parties CDU/CSU and SPD, and trade unions, conceded that the Riester-Rente supplementary system has stagnated in recent years.
“There will be further discussions and hopefully improvements in the framework of the implementation of the points of the Rentenkommission,” he added.
The pressure to review the Riester-Rente may rise following the latest data published by the Federal Ministry of Labour and Social Affairs.
According to the ministry, the number of contracts of Riester pensions fell in Q1 2020 for all the products, a result never recorded since its introduction.
Riester products saw an overall decline from 16.530m contracts last year to 16.478m in Q1 2020.
Investment funds contracts also decreased from 3.313m in 2019 to 3.307m this year, and residential Riester contracts fell to 1.811m in Q1 2020 from 1.818m last year.
“In this phase of low interest rates, that will last longer, the product is not fully attractive,” Brodesser said.
“In this phase of low interest rates, that will last longer, the product is not fully attractive”
Carsten Brodesser, member of the finance committee of the German Parliament and MP for the CDU/CSU group
A spokesperson of BVI, the German Investment Funds Association, told IPE that the Riester pension is a business that requires “intensive” advice.
“One reason for the slight decline in the number of contracts of fund products in the first quarter of 2020 could be that many local bank branches were not open in the face of the coronavirus crisis and as a result it was not possible to conclude contracts for old-age provision,” he said.
Another reason, the spokesperson added, could be that the public discussion on the further development of the Riester pension has unsettled some savers, who are currently waiting to sign a contract.
Last November, the BVI submitted to the government a five-point plan to design a simple, standard product, available to everyone, including self-employed, with relaxed guarantees on total gross contributions, and a simplified procedure to grant bonuses.
“There’s not much time left in this legislative period for a reform of subsidised pension provision,” the spokesperson said.
For the BVI, the bureaucratic system of the Riester pension system has to be simplified, also to save product costs.
“There are now discussions in politics about how the Riester pension can be improved. We are campaigning for a simplification of the Riester pension scheme – which offers special subsidies and tax incentives – and for significantly less complexity and bureaucracy,” he concluded.