(de-news.net) – Germany’s governing coalition has agreed on revisions to its planned private pension reform, expanding subsidies for low-income savers and the self-employed while tightening cost caps on new products. The overhaul is intended to replace the criticized Riester system with a simpler framework that includes a low-cost centralized standard product, higher state subsidies, and continued support for families with children. Consumer advocates welcomed the changes, while the government argued the reform would make private retirement saving cheaper, simpler, and more accessible ahead of a planned launch in January 2027.
A proposal for a new state-subsidized private pension scheme has been revised and strengthened by the CDU/CSU and SPD. According to fiscal policy representatives from both parliamentary factions in Berlin, the final compromise broadens eligibility for public subsidies to include the self-employed and provides more substantial support than originally envisaged for individuals with only limited capacity to save.
Finance Minister Lars Klingbeil’s initial reform proposal underwent a series of changes during the legislative process. Under the revised model, savers contributing up to 30 euros per month are to receive a basic subsidy of 50 cents for every euro deposited. For monthly contributions above that threshold and up to 150 euros, the subsidy rate is to decline to 25 cents per euro. In addition, parents are to qualify for the full child allowance of 300 euros per child per year from a monthly contribution of just 25 euros. The CDU/CSU-SPD coalition has also decided to revise its broader private pension reform by increasing state support, tightening cost caps, and extending subsidized access to the self-employed. Coalition representatives in Berlin stated that the previously discussed ceiling of 1.5 percent on annual administrative costs for the new products would likely be reduced to 1 percent.
Coalition turns away from Riester with new standard product
The reform is intended to replace the existing Riester pension scheme, which has long been criticized by consumer advocates for high ancillary costs and weak returns. Riester was originally designed to supplement future statutory pensions through tax incentives, state bonuses, and a full guarantee of contributed capital. That guarantee, however, was widely seen as significantly constraining return potential. Its attractiveness was further eroded by high contract, distribution, and management costs. As a result, many policyholders had already stopped making contributions or had canceled their contracts. According to figures from the Federal Ministry of Labor, just under 15 million Riester contracts remained at the end of 2024, but contributions were reportedly no longer being made into an estimated 20 to 25 percent of them.
That approach was altered on Tuesday. In addition to private-sector products, the new framework is now to include a low-cost centralized standard product intended to serve as a benchmark for private offerings and to give consumers a simpler route into retirement saving. For more than a decade, the Federation of German Consumer Organizations, or VZBV, has advocated replacing Riester with a state-backed standard product modeled on the Swedish system.
Coalition boosts pension subsidies for low-income savers and families
State subsidies were also increased. Under the new model, savers would receive 50 cents for every euro contributed up to 360 euros annually, followed by 25 cents per euro up to a total annual contribution of 1,800 euros. The maximum basic subsidy would therefore rise to 540 euros per year, with the greatest relative benefit accruing to lower-income savers able to set aside no more than 30 euros per month. Additional support for families with children is to remain in place, and parents are expected to qualify for the full child allowance of 300 euros per child per year from a monthly contribution of 25 euros. Coalition representatives argued that, for parents with very limited savings capacity, the arrangement would effectively match each euro of personal contribution with one euro of public support.
The compromise will also increase fiscal costs. Coalition figures indicated that extending subsidized participation to the self-employed would add roughly 370 million euros in expenditure, while the higher subsidy rates would require a further 15 million euros. The coalition justified the inclusion of the self-employed by pointing to the continued prevalence of precarious conditions in old age within that group.
Klingbeil had originally proposed retaining guaranteed private pension products, including one with a full payout guarantee and another with an 80 percent guarantee, while introducing a new retirement savings account with greater capital-market return potential but no guarantee. His original plan also provided for a 1.5 percent cost cap on a standardized account aimed at less experienced savers. Following broad criticism that such charges would still impede meaningful returns, however, the coalition settled on a 1 percent effective-cost ceiling. Klingbeil argued that the agreement would make private retirement provision easier across income groups and generations, while also making the system less costly, less complex, and less bureaucratic. He further stated that the federal government was continuing work on the so-called early-start pension, under which children and adolescents between the ages of six and 18 would eventually receive 10 euros per month from the state for a retirement savings account. The scheme is to begin with those born in 2020, while the inclusion of older cohorts from 2029 onward remains unresolved.
Consumer advocates praise Riester rewrite as Bundestag vote nears
The changes to the Riester pension reform agreed by the CDU/CSU and SPD on Tuesday were welcomed by the VZBV, which described the compromise as a major step forward for consumers and for those who need to accumulate private retirement savings. Ramona Pop, a member of the organization’s executive board, argued that the agreement finally opened the way for a universal standard product intended to combine low costs with stronger returns. She added that the next phase of implementation should focus on ensuring that both the product itself and access to it are designed in the most consumer-friendly way possible.
In their coalition agreement, the governing parties had already committed themselves to replacing the Riester pension with a new retirement savings vehicle that would also be available in a simplified standard format. Even so, the federal government’s draft legislation had still envisaged that providers would offer their own standard products and distribute them on a commission basis. The Bundestag is expected to approve the legislation as early as Thursday, after which it will proceed to the Bundesrat. The new pension products are scheduled to become available from January 1, 2027. Until then, holders of existing Riester contracts will still have time to consider whether to switch. While legacy contracts are to remain protected, savers will be allowed to move into the new system without repaying previously received subsidies. Transfer, sales, and contract-related fees may still apply, however; according to the Finance Ministry, those charges are to be subject to statutory caps.
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