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German government sweetens Riester pension

GERMANY - The German government will provide additional financial incentives to the so-called "Riester-Rente" from next year, a subsidised third-pillar pension rolled out in early 2002.
 
According to the German finance ministry, holders of the Riester pension will get a bonus - effectively a tax break - equalling €300 per annum for each new child born after 2008. For children born before 2008, the bonus will be raised to €185 per annum.

The finance ministry also said a one-time bonus of €100 would be provided to Germans under the age of21 who sign up for Riester.

"The Riester pension is booming.By the end of the year, I expect 10 million of the pensions to be sold," said finance minister Peer Steinbrück.

He believes these latest incentives will make the pension an even more attractive retirement saving tool.

To date, approximately 9.1m Riester contracts have been sold in Germany,representing just under one-third of the 30m people eligible for the pension.

Another 1.2 million fund-based versions of the Riester pension have been sold by Union Investment, a Frankfurt-based asset manager, while Deutsche Bank's retail fund arm DWS had also soldanother 50,000 fund-based versions of Riester by the end of 2006.

Demand for the Riester pension has been surging since early 2005 when government improvements, such as greater portability, simplified criteria for subsidies and less restrictions on monthly contributions, took effect.

According to pension experts, Riester could, during retirement, provide €400 a month to a 35-year-old German saver with a median income of €30,000 per annum. This, however, assumes the saver makes the maximum contribution to the private pension.

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