Germany’s pension system is finally getting the overhaul it desperately needs. After years of declining confidence in the Riester-Rente (Riester pension) and mounting evidence that the scheme delivered more fees than returns, the cabinet has approved a fundamental reform centered on the Altersvorsorgedepot (retirement savings account). This new vehicle promises ETF-level returns with state subsidies, but the real game-changer isn’t the advertised €1,800 in annual contributions, it’s the overlooked €11,880 you can stash away without subsidies but with massive tax advantages.
The Basic Promise: What Everyone Knows
Let’s start with the headline numbers. The Altersvorsorgedepot allows you to contribute up to €1,800 annually, receiving both tax deductions and direct subsidies. The basic allowance (Grundzulage) reaches €480 per year, with child supplements (Kinderzulagen) adding another €300 per child. For a family with two children, that’s €1,080 in free money annually.
The Handelsblatt reports that existing Riester contracts can transfer into this new system, and the official launch target is January 1, 2027. The reform eliminates the hated 100% contribution guarantee that forced providers into low-yield investments, finally allowing meaningful equity exposure through ETFs and index funds.
But here’s where the public narrative stops, and where savvy investors should start paying attention.
The Hidden Layer: €11,880 in Ungeförderte Contributions
Buried in the draft law (Bundestag document 21/4088) is a provision that transforms this from a modest subsidy program into a serious wealth-building tool. Beyond the subsidized €1,800, you can contribute an additional €11,880 per year in ungeförderte (unsubsidized) contributions. These receive no direct subsidies but enjoy the same tax-advantaged depot structure.
Why does this matter? Three reasons:
- No Vorabpauschale (advance tax) during accumulation
- No tax on rebalancing gains when switching between funds within the depot
- Halbeinkünfteverfahren (half-income procedure) on withdrawal, only half your gains are taxed
This creates a scenario where for most investors, maxing out the full €13,680 annual limit (€1,800 subsidized + €11,880 unsubsidized) beats a regular ETF depot, even without touching the subsidies.
The Tax Math That Changes Everything
The German tax code distinguishes between geförderte (subsidized) and ungeförderte contributions at withdrawal. While subsidized contributions face full income tax on the entire payout, ungeförderte contributions benefit from a crucial exception.
According to §22 Nr. 5 Satz 1 and 2 of the Einkommensteuergesetz (Income Tax Act), payouts from ungeförderte contributions are taxed only on the difference between payout and contributions. Even better, §20 Abs. 1 Nr. 6 Satz 2 applies the half-income procedure if you meet the 12/62 rule: at least 12 years of holding and withdrawal after age 62.
The bottom line: Your gains are taxed at only half your personal income tax rate, with no Abgeltungsteuer (withholding tax) of 26.375% in sight. For anyone with a marginal tax rate below 37% in retirement, this beats conventional ETF taxation.
Why This Beats Regular ETF Depots
Many investors wonder: why lock up money for decades when I can invest freely? The answer lies in the Steuerstundung (tax deferral) effect.
In a normal depot:
– You pay Vorabpauschale annually on accumulating ETFs
– Selling to rebalance triggers capital gains tax
– All gains face 26.375% Abgeltungsteuer (or your personal rate if higher)
In the Altersvorsorgedepot:
– Zero taxes during accumulation
– Zero taxes on internal rebalancing
– Gains taxed at half your (likely lower) retirement rate
The draft law explicitly states this structure aims to prevent “gezielte Umgehung der Abgeltungsteuer” (targeted circumvention of withholding tax). Ironically, the government is creating a legal way to do exactly that, just within their new system.
The Flexibility Revolution
Unlike the rigid Riester system, the Altersvorsorgedepot offers genuine flexibility. The Bundesrat’s response to the draft law confirms you can:
– Switch providers after 5 years without penalty
– Choose between lifelong annuity or capital payout until age 85
– Use funds for property purchase or energy-efficient home improvements
– Pass remaining capital to heirs (no more Versicherungsverfall or insurance forfeiture)
This addresses the biggest complaint about Riester: the “Reservierungs-Zwang” (reservation requirement) that forced retirees to buy expensive insurance products with their savings, dramatically reducing monthly payouts.
Who Actually Benefits? The Controversial Truth
The new system creates clear winners and losers, something the government downplays.
- Winners:
– Middle-income earners who can afford €500+ monthly contributions
– ETF-savvy investors comfortable without guarantees
– Parents with children, thanks to the 25% child bonus on contributions
– Anyone with a higher tax rate in working years than retirement - Losers:
– Low-income earners who previously benefited from high subsidy-to-contribution ratios under Riester
– Risk-averse savers who valued the 100% contribution guarantee
– People who can’t commit to 12+ years of locking up capital
The Fondsverband BVI notes that the shift from fixed subsidies to percentage-based matching means the “free money” effect is now directly tied to your ability to contribute large amounts. A parent contributing €60 annually under Riester might have received €300+ in subsidies, a 500% match. Under the new system, that same €60 contribution yields just €18 in subsidies.
This has sparked criticism that the reform helps the middle class while abandoning those who needed help most. As one analyst noted, “Die Beträge wurden seit 20 Jahren nicht angepasst” (The amounts haven’t been adjusted in 20 years), leaving low earners further behind.
The ETF Revolution Meets German Bureaucracy
The new system finally opens the door for neobrokers and digital platforms to enter the state-subsidized pension space. Scalable Capital, Trade Republic, and others are already preparing certified products. This could slash costs from the typical 1.5% TER (total expense ratio) to under 0.2% for pure ETF solutions.
But there’s a catch. The draft limits providers to insurers, banks, and capital management companies, excluding pure brokers. This creates a regulatory hurdle that might prevent the cost revolution many hope for. As one commenter noted, “Broker dürfen kein Altersvorsorgedepot anbieten. Nur Versicherer, Banken und Kapitalverwaltungsgesellschaften.”
The 1.5% cost cap for Standarddepots (standard depots) has already drawn fire. At a 6% market return, this cap consumes nearly 25% of annual growth. Over 30 years, the difference between a 1.5% cost product and a 0.2% ETF could exceed €50,000 in final capital.
The Elephant in the Room: Future Taxation
A major concern among critics is that creating this tax-advantaged island will encourage future governments to raise taxes elsewhere. The logic: “If everyone has their Altersvorsorgedepot, then other capital income can be taxed more heavily.”
Some fear this sets the stage for extending Krankenversicherungsbeiträge (health insurance contributions) to all capital income, not just salary. The SPD has previously signaled openness to such ideas, and the healthcare system’s funding gap makes this politically tempting.
This creates a strategic dilemma: maximize the new depot’s benefits now, but risk that future tax changes erode the advantage of private ETF depots.
What You Should Do Now
Don’t wait for 2027. The Zinseszinseffekt (compound interest effect) is too powerful to delay. Start a regular ETF Sparplan (savings plan) today with providers like Trade Republic or Scalable Capital. This builds experience and capital that can either transfer into the new system or remain as a flexible supplement.
Once the Altersvorsorgedepot launches, run the numbers for your situation. If you can contribute beyond €1,800 annually, the tax advantages likely make the full €13,680 limit optimal. If you can only save smaller amounts, the new system may actually be worse than Riester was, though Riester’s high costs often negated its subsidies anyway.
The Verdict: A Genuine Game-Changer With Caveats
The Altersvorsorgedepot represents the most significant German pension reform in two decades. For informed investors willing to commit long-term, the combination of subsidies, tax deferral, and half-income taxation creates a compelling wealth-building tool that likely outperforms conventional investing.
But it’s not universal salvation. The shift from fixed subsidies to percentage matching hurts low earners. The 12-year lock-up requirement penalizes flexibility. And the uncertainty around provider costs and future tax policy clouds long-term projections.
The draft law shows the government finally understands that Rendite (return) matters more than Garantien (guarantees) for closing the pension gap. Whether they can implement this without bureaucratic bloat and political backtracking remains the open question that will determine if this reform succeeds where Riester failed.
For now, the smart move is to prepare your finances so you can max out the €13,680 limit when the system goes live. The tax arbitrage opportunity is real, but like all good things in German finance, it comes wrapped in complex conditions that demand careful planning.
Internal Links for SEO:
- For more on the broader reform context, see our analysis of Riester pension reform and the new Altersvorsorgedepot
- Learn why high-cost insurance-based investments underperform ETFs
- Read about the poor returns from traditional German life insurance pension products
- Discover how neobrokers and digital platforms are entering state-subsidized pension space
- Understand the rising investor anxiety driving fund inflows amid pension concerns
- Stay informed about potential tax changes affecting capital income
- Explore the proposed expansion of health contributions to all income
