If the Federal Council does not yet apply the emergency brake, the Occupational Pensions Reinforcement Act will enter into force on 1 January 2018. In this context, the Riester pension will also be upgraded. During the savings phase, the basic allowance increases from 154 to 175 euros per year. For company Riester pensions, the SV obligation will cease to apply in the payout phase from 2018; from then on they will be privileged in the same way as private Riester pensions. Above all, the combination of employer’s allowance for low earners and Riester pension makes company Riester schemes very lucrative at first glance.
At second glance, consultants and their clients should not be so sure. Especially since the outbreak of the financial crisis, German politics promises a lot when the day is long. A look back: On Sunday, 5 October 2008, the Chancellor said “We tell savers that their deposits are safe. The Federal Government is also committed to this.” That was a wonderful political declaration of intent, but unfortunately, due to the lack of a legal basis, not a hard guarantee. On April 24, 2016, another Sunday, an employment minister is quoted as saying “The state guarantees that all Riester holders will get their money paid out.” This was also a statement without legal basis.
But what does the law say? In the Altersvorsorgeverträge-Zertifizierungsgesetz (Certification Act for Old-Age Provision Contracts) you can read in paragraph 1: “An old-age provision contract within the meaning of this Act is deemed to exist if an agreement is concluded in German between the provider and a natural person (contractual partner), … in which the provider promises that at the beginning of the payout phase at least the paid-in old-age provision contributions will be available for the payout phase …”. In legal terms, it is therefore the provider, i.e. the insurer, fund company or credit institution, that is a guarantor for the Riester savers – and not the state.
At best, the only thing that is certain is the merit for the namesake of the Riester pension, or so the wicked say. In fact, the daily press reported in 2008 that Walter Riester, then Minister of Labor, had earned 284,000 euros from advertising lectures. On average it seems certain that Riester savers will have to rely on the premium guarantee, i.e. a zero percent interest rate, because the hope of a positive return on investment with the insurer is dwindling due to the persistently low interest rate environment.
After 40 years of the savings phase and perhaps 20 years of the payout phase, one in four providers could, with an average assumed annual insolvency frequency of 0.5 percent, cease to be a guarantor of the Riester saver in accordance with Solvency II requirements. An at least equally large share could be “voluntarily” liquidated – in order to avoid an insolvency application by Bafin. Let us recall that in April 2016, the Bafin announced that it would monitor a double-digit number of life insurers more closely. It could not be ruled out that individual life insurers would withdraw from the market, it was said, and from then on they took the companies “into man coverage”. In extreme cases, a withdrawal from the market leads either to a cessation of business or to insolvency – leaving only liquidation.
Of course, Riester contracts can be terminated properly. But then the allowances are gone. There could be trouble for advisors and providers if disappointed investors insist on “guarantees”. It will be preferable to switch to the “Wohnriester”, such as a corresponding building savings contract or the repayment of housing loans. Then the previous allowances and tax advantages will be retained and can continue to be granted in the future. In contrast to a Riester pension, the property can already be used in the savings phase and the Riester assets thus created are even inheritable. Not to be misunderstood: I don’t think that the Riester pension has failed. The increased funding is likely to give them a boost to final figures. One should only take a close look at who makes which guarantees and what these promises are worth in an emergency.
by Dr. Johannes Fiala
by courtesy of
www.portfolio-international.de (published in the financial magazine Portfolio International, issue 03/2017, page 22)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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