Wohn-Riester – Watch out for cost traps

The Riester pension as a state-subsidised form of private old-age provision is an attempt to compensate for the declining level of pensions in the future.

This usually does not affect self-employed persons, but rather assisting spouses and employees as compulsorily insured employees. With “Wohn-Riester”, the funds saved can be used to purchase residential property. However, it is important to watch out for cost traps.


Riester subsidy

Four percent of the previous year’s income subject to contributions can be saved, up to a maximum of 2100 euros. For this, there is a basic allowance of 154 euros and a child allowance of 185 euros for each child entitled to child benefit. For newborns born in 2008 or later, the amount is 300 euros. For a married couple with two children and another newborn in 2008, this amounts to 978 euros per year. Those who are under 21 will receive an additional career starter.


Mostly modest returns

Contributions to Riester savings can be deducted from tax like special expenses:

But here lurks the first trap. If the tax incentive takes effect, all allowances will be completely offset again. So in the end, there is only the tax savings. And in the pension phase, taxes are then payable on the complete Riester pensions – the so-called deferred taxation. The return on such contracts is then sometimes so modest that it may be worthwhile to do without the subsidised Riester contracts altogether. The administration of the contracts is also complex and therefore often very expensive. Moreover, in the first five years more is usually withdrawn for acquisition costs and commissions than is added in terms of subsidies.


What’s new about Wohn-Riester

A new feature of Wohn-Riester is that the funds saved can now be used in full to buy a home of one’s own “including a condominium or cooperative apartment”, without any repayment obligation – and this even before reaching the age of 60. It is also possible to use the Riester contributions, including the subsidy, to repay a building loan.

For example, there will also be residential Riester home loan and savings contracts and combinations between other Riester investments and building loans. However, this results in another cost trap, because combinations of savings, pension and loan contracts can only be recalculated by an independent expert and provide the basis for a comparison. In addition to investment risks with Riester funds, borrowing costs can become considerably more expensive:

In economic terms, the Riester subsidy only benefits the product provider – but not the citizen.


There is a housing premium

The 45-euro housing subsidy is to be retained – but in future only if the money is invested in a residential property.

Here, too, a price trap lurks: It is estimated that over 1 million German citizens have bought overpriced properties in the past two decades. For the most part, it would have been a bargain for the bruised buyers to ask an expert for real estate valuation beforehand or to call in a well-insured architect to accompany the construction of the property. Getting advice on tax legal risks beforehand costs only about 1/20th of what would have to be spent on later remediation in the event of damage.


Tax boomerang in old age

A farmer in the countryside recently refused to talk about Riester with the following words:

“Remember, my boy, the state has never given its citizens anything.”

A fictitious “housing subsidy account” will be maintained for the subsidised amounts that have flowed into the property from withdrawn existing Riester investments and subsequently, primarily through loan repayments. These contributions earn interest at 2 % p.a. At the beginning of the so-called payout phase, the taxpayer can choose whether to then pay tax on this (fictitious) money over 17 to 25 years on an ongoing basis – the heirs are also liable for this later – or on the basis of 70 % of the fictitious housing promotion account balance all at once:

This results in a progression jump. This money must be saved in addition, because the Riester savings are “tied up in the ground”.


Stagnating or falling real estate prices

Since reunification, property prices have only risen in selected prime locations. The burdens of taxes, high inflation in energy and living costs and the growing money supply due to the recent banking crises do not change the fact that, in view of the decline in population, prices are still hardly expected to rise on the whole.


Expert advice needed

Also with promotion by “living Riester” the buyer or owner is well advised to secure expert company, in order not to lose at the end a multiple of the Riester promotion by unfavorable contracts with saving and buying as well as with building and the credit financing immediately again.


Early use and inheritability as an advantage

Wohn-Riester is the only form of Riester where savers can use the funds they have saved even before the age of 60 – by “living off” them. In addition, the interest savings through redemption are usually more worthwhile than any other investment. For those who would like to invest in their own residential property anyway – quite independently of Riester – it will therefore only rarely be worthwhile saving for or maintaining a separate Riester contract instead of using the funds to repay the property loan.

Therefore, a great deal of Riester funds will certainly flow into the new Wohn-Riester. However, only a few funds have been saved so far – due to irrevocably high costs – usually not even the paid-in contributions. Anyone who actually wants to use Wohn-Riester in a few years’ time should therefore not agree another Riester contract with high initial costs now.

For him, a Riester building society contract may be the right thing to do instead. Another Riester contract, a losing proposition despite subsidies. And with Wohn-Riester, the saved funds are not completely lost to the heirs in the event of death – the subsidised property can be inherited by the children. This should also be an argument for many people to take advantage of the “Wohn-Riester” scheme. The first certified “Wohn-Riester” offers can be expected in the next few weeks.


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

by courtesy of

www.elektropraktiker.de (published in Elektropraktiker, issue 5/2008)


www.friseurwelt.net (published in Friseur Welt, issue 05.2009, page 75 under the headline: Well paid attention with the Wohn-Riestern)


www.schornsteinfeger.de (published in Schornsteinfegerhandwerk, issue 6/2008, page 42 under the headline: Wohn-Riester: Caution new home ownership and building savings trap).


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About the author

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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