The amount of the levies due when a “Riester pension” is paid seems unclear. Why the capital is not secure with this form of pension.
In October 2008 the Chancellor said “We tell savers that their deposits are safe. The federal government also vouches for that.” – Which, for lack of a legal basis, is not a declaration of guarantee but, correctly understood, a political declaration of intent.
In April 2016, a Labour Minister is quoted as saying “The state guarantees that all Riester holders will get their money paid out”. – Which is also without legal basis.
Guarantee for the undaunted “Riester savers”
In § 1 of the Old-Age Provision Contract Certification Act (AltZertG) you can read: “An old-age provision contract within the meaning of this Act is deemed to exist if an agreement in German language is concluded 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 …”.
Legally, it is the provider, i.e. the insurance company or credit institution, that guarantees the Riester savers – and not the state. Just like the rent-a-thug is the guarantor when he says “Tomorrow I’ll pay the rent – guaranteed.”
Secure earnings only for the name donor
In 2008, the daily press reported that the Minister of Labour had earned €284,000 from advertising lectures. This seems to be assured. On the other hand, for about 17 million Riester savers, the amount of the contributions to the state which will ultimately be due upon payout is not secured. On average it also seems certain that Riester savers will depend on the guarantee, because the hope of a positive return on investment with the insurer is dwindling due to the decades of low interest rates. After 40 years of the savings phase and perhaps 20 years of the payout phase, one in four providers could cease to be a guarantor of the Riester saver, assuming an average annual insolvency frequency of 0.5% 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. At the latest when the state would then actually guarantee on the basis of a law, everyone will ask themselves what sense the capital cover had in contrast to the pay-as-you-go system of the statutory pension.
Growing risk of insurer insolvencies
In April 2016, the Financial Supervisory Authority (BaFin) admitted to observe a double-digit number of life insurers more closely “I cannot rule out the possibility that individual life insurers will leave the market,” said a BaFin employee. Alternatively, this means either a cessation of business or insolvency – leaving only liquidation.
If the insurer is in difficulties, the continuation of the contract will become unreasonable. The Federal Court of Justice allows extraordinary termination without notice – despite contractual ordinary non-terminability “if the fulfilment of the insurance contract by the insurer has become uncertain” (Federal Court of Justice, ruling of 4 April 1951, file no. II ZR 32/50). However, Riester contracts can be terminated in any case. In any event, the allowances must then be repaid.
Continue to use allowances and tax benefits
It is preferable to switch to the “Wohnriester”, e.g. a corresponding building society contract or directly to a home of one’s own 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 accumulated are even inheritable.
by Dr. Johannes Fiala, and Dipl.-Math. Peter A. Schramm
with friendly permission of www.bindereport.de
published in “Bindereport” (issue 10/2017), page 14
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PhD, MBA, MM
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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