GERMANY - Fund industry association BVI, which had previously railed against the so-called Riester pension, has reported a boom in the number of the pensions sold by its members.
According to the BVI, the number of Riester pensions sold by asset managers by September 30 totalled around 937,000. This is equivalent to an increase of more than two-fold from one year earlier.
The BVI added that in the first nine months of 2006, more than 360,000 of the pensions were sold, with Union Investment, an asset manager tied to Germany's co-operative bank sector, accounting for 90% of the total.
In the nine months, another 20,000 Riester pensions were sold by Deka Investment, an asset manager tied to public sector savings banks (Sparkassen). Meanwhile, Deutsche Bank's DWS sold 6,000.
Launched in 2002, the Riester pension is subsidised by the government. Until the beginning of 2005, demand for it had been sluggish, leading the BVI to declare the product a failure.
In its place, the BVI had continually urged the government to adopt its proposal for a simplified retirement account modelled after IRAs in the US.
But since the government simplified the Riester pension in January 2005, demand for it has boomed. German insurers were the first to benefit from the boom last year.
Hence, as late as November 2005, the BVI remained unimpressed with Riester. "In the private sector, only 10% of those eligible for the Riester private pension have taken it up. I don't think those statistics reflect that Germans have the kind of retirement provision they need," BVI managing director Stefan Seip told a news conference.
Since Seip's remarks, more than 7m Riester contracts, including those offered by insurers and asset managers, have been sold in Germany, representing about 25% of the pension's market potential.
To further boost demand for it, the government will from January 1 2007 permit Riester pension holders to withdraw savings for the purchase of property. From January 1 2008, Riester pension holders will also get a tax break equalling €300 for every child born after that date.
The government calculates that since its launch on January 1 2002, it has provided more than €1bn in subsidies for the Riester pension.