Riester returns are far more rewarding for higher earners than for lower earners

– Which is why this also applies to the statutory pension as well as private pension insurances -.


A study by the Free University of Berlin dated 15 June 2015 describes the distribution effects of old-age pensions on different population groups. On the other hand, an expert of the Deutsche Rentenversicherung Bund (DRV) thinks that with half the average income and three children, the return on Riester contracts would be 5.3% – financed in particular by the state allowances as “yield bringers”. The daily press gratefully received such statements without doing the math.


Question of life expectancy

The Institut für Vorsorge und Finanzplanung (Institute for Pension and Financial Planning) has currently analysed about 1000 Riester contracts which are in the payout phase, but also fund savings plans. According to this, the average return on the capital paid in by the saver after tax was 3.6 percent. At worst, it was 2.3 percent. For newly concluded Riester pensions, however, returns like in the past are hardly to be expected.

The calculations took into account the currently valid mortality tables of the insurers without the additional four years or so that the insurers add on for safety – according to this, a life expectancy of 87 years was calculated for a 65-year-old.

But these insurance mortality tables are based on the longer life expectancy of privately insured pensioners compared with the general population. In this context, the far shorter life expectancy of low-income earners or persons with low pensions, as determined by the insurers, was only taken into account with a small weight. The insurer mortality table is therefore dominated by the long life expectancy of high-income private pensioners.

German Institute for Economic Research (DIW): High earners benefit

In July 2015, the DIW had already correctly pointed out the redistribution “from poor to rich” through Riester. DRV’s studies already suffer from the shortcoming that the question of net return after tax is not compared. A normal private pension insurance is only taxed with the income share – at the age of 67, 83% of the pension remains completely tax-free. Those who have to turn over every penny in old age anyway will be grateful in this phase of life not to have an additional high burden of levies.


Return killer: taxes in old age and lower life expectancy of low earners

The DRV “calculates” its Riester yield taking into account the pension payment period according to average life expectancy, and in each case calculates with a gender-dependent mortality table, one for men and one for women.

In fact, however, it has long been known – also from studies by the German Pension Insurance Fund – that low earners have a significantly shorter life expectancy than higher earners.


Thus, the rate of return for low-income earners must realistically be reduced again compared to that calculated with average life expectancy. The return for higher earners, on the other hand, increases again due to their above-average life expectancy.


Even someone who is already seriously ill will not be able to count on the life expectancy calculated here – for him the Riester pension may not be worthwhile at all. However, he can withdraw the money before the start of the pension and transfer it to Wohn-Riester, where the heirs also benefit.


Yield deception through calculation without consideration of income

The DRV does not only leave the fiscal effects out of it – that is as realistic as to believe in the age the citizen would have to send to the tax office only once a “resignation explanation”. In addition, the DRV calculates the same life expectancy regardless of income, on the grounds that no one can know at 30 how long they will live.

Even if this were not yet of significance for the decision to take out a Riester pension at the age of 30: with increasing age, as life expectancy becomes increasingly better, premium payments are discontinued or the Riester contract is even terminated and the surrender value is withdrawn without allowances.

The DRV has known for a long time that low-income earners live far shorter lives on average than higher-income earners.


Even in the case of the statutory pension, the weaker are allowed to subsidise the stronger

This, however, shifts the returns again significantly to the detriment of low earners. This effect has long been known in science and can be observed in particular in every private pension insurance as well as in the statutory pension. You only listen away when the subject comes up that even in the DRV the weaker ones subsidize the stronger ones.


In the case of the Riester pension, there is also the fact that higher Riester contributions are often subject to relatively lower costs than lower ones, or that cost surpluses are only returned above certain amounts. Cost differences with cheaper providers can result in up to more than EUR 10,000 more capital at the start of the pension – even a later change to a provider that may only become increasingly cheaper from then on is often worthwhile.


Allowances of Riester savers often turn into mortality profits for providers

The masses of low-income Riester savers in particular do not benefit from Riester allowances – these later turn into mortality profits for banks and insurance companies when the policyholder dies and are bequeathed to higher-income earners who live longer. Riester savers can counteract this additional subsidisation of financial houses and high earners by switching to Wohnriester, because only then will the Riester assets be inheritable.


The DRV’s calculation approaches are probably more like dreams in insurance sales – they lack the suitability to show that the Riester pension is more worthwhile for low earners. From time immemorial, there has been an obligation to provide information about the total loss risk when selling capital investments for old-age provision: this is the case if the low-income earner simply has nothing at all from his Riester payments in old age – because these at best reduce the benefits of the basic security pension due to potential full offsetting.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm



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Dr. Johannes Fiala Dr. Johannes Fiala

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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