Germany’s pension system is finally getting the overhaul it desperately needs. After years of declining confidence in the Riester-Rente and mounting evidence that the scheme delivered more fees than returns, the cabinet has approved a fundamental reform centered on the Altersvorsorgedepot. This new vehicle promises higher returns, lower costs, and actual flexibility, if the financial industry doesn’t water it down before launch.
The Riester Problem No One Wanted to Admit
Let’s be blunt: the Riester-Rente has been a disappointment. Despite generous government subsidies, millions of savers watched their contributions generate anemic returns, often below inflation. The mandatory guarantees that were supposed to protect savers instead strangled performance, while insurance companies and banks pocketed hefty commissions upfront.
The numbers tell a stark story. With the old Riester model, a typical saver might contribute €1,800 annually (including subsidies) and end up with a final capital that barely exceeded their total contributions after decades. The problem wasn’t just the high costs, it was the rigid structure that forced everyone into the same low-risk, low-return straitjacket, regardless of age or risk tolerance.
Enter the Altersvorsorgedepot: No Guarantees, No Problem
The new Altersvorsorgedepot takes a radically different approach. Instead of forcing providers to guarantee 100% of contributions, it allows pure capital market investments without any safety net. This means savers can finally invest in globally diversified ETFs and equity funds that actually generate wealth over the long term.
For the first time, German pension savers will be able to build a portfolio with 100% equity exposure if they choose. The law explicitly permits investment in EU-approved funds, ETFs, and other real asset classes, excluding only the most speculative products like individual stocks, crypto, or leveraged instruments. For those who still want some protection, providers can offer products with 80% or 100% guarantees, but these will be the exception, not the rule.
How the New Subsidy System Actually Works
The financing mechanics are clever. The government is ditching the flat €175 basic allowance in favor of a contribution-dependent model that rewards higher savings:
- 30 cents for every euro you contribute, up to €1,200 annually (max €360 subsidy)
- 20 cents for the next €600 (max additional €120 subsidy)
- Total maximum basic subsidy: €480 per year
Parents receive an additional 25 cents per euro for child contributions, up to €300 per child annually. Young professionals under 25 get a one-time €200 starter bonus in the first three years.
This structure creates a powerful incentive: the more you save, the more the state contributes. For a family with two children contributing €1,800 annually, the total subsidy could reach €1,080 per year, significantly more than the old Riester system offered.
Tax Treatment: The Same Deferred Model
The tax advantages remain unchanged during the accumulation phase. Contributions reduce your taxable income, and all investment gains grow tax-free. No capital gains tax, no Vorabpauschale, no withholding tax on dividends.
The taxman cometh only at retirement, when payouts are taxed as regular income. This deferral strategy works because most retirees fall into lower tax brackets than during their working years. For high earners currently in the 42% tax bracket, this can mean paying only 15-20% on withdrawals later, a substantial saving.
What Happens to Your Existing Riester Contract?
If you’re among the 15 million Germans with a Riester contract, you have options. Existing contracts remain valid under the old rules, no forced conversion. You can continue contributing and receiving subsidies exactly as before.
But you can also voluntarily switch to the new Altersvorsorgedepot without losing accumulated subsidies. The law mandates that providers allow this transition, though they may charge switching fees limited to the first five years of the contract. For many, this will be a smart move, especially if your Riester contract is loaded with high-cost insurance wrappers.
The catch? You can’t just transfer fund shares directly. The law requires selling existing assets and reinvesting the cash in the new depot, which could trigger transaction costs and market timing risks.
The 1.5% Cost Cap: Progress or Paper Tiger?
Here’s where the reform shows both its strength and weakness. Every provider must offer a Standardprodukt with total costs capped at 1.5% annually, including all management, transaction, and distribution fees. For comparison, many old Riester products charged 2-3% or more.
Industry insiders expect neobrokers to offer the depot for free or near-zero cost, treating it as a customer acquisition tool. Traditional banks and insurers will likely price right up to the 1.5% limit. The difference over 30 years is staggering: on a €50,000 portfolio, 1.5% fees cost €750 annually versus €50 at 0.1%.
Critics point out that Sweden’s state-organized pension product charges just 0.05% annually while delivering double-digit returns. The German 1.5% cap, they argue, still allows excessive rent-seeking by financial institutions.
Flexibility in Retirement: Finally, You Have a Choice
The payout phase becomes genuinely flexible. At retirement, you can choose between:
- Lifelong annuity (Leibrente): Traditional monthly payments until death
- Term-certain plan: Withdrawals until age 85, with any remaining capital inheritable
You can also take up to 30% of your capital as a lump sum without penalty. This addresses one of Riester’s biggest flaws: the forced annuitization that left savers with tiny monthly payments and no access to their capital.
Who Benefits Most?
The new system heavily favors middle-income families with children. A married couple earning €60,000 combined with two kids could receive over €1,000 in annual subsidies while building a stock portfolio that compounds at 6-7% instead of 2-3%.
High earners benefit from the tax deferral, though the €1,800 contribution limit is low compared to international standards. The truly self-employed, who were largely excluded from Riester, remain excluded from direct subsidies, a glaring omission.
The Bottom Line: A Step Forward, But Watch the Details
The Altersvorsorgedepot is a genuine improvement. It abandons the failed guarantee model, embraces capital markets, and creates meaningful subsidies for those who need them most. If neobrokers drive costs toward zero, it could become Germany’s best retirement savings option.
But the reform’s success depends on implementation. The 1.5% cost cap leaves room for exploitation. The exclusion of self-employed workers is indefensible. And the financial industry will fight to preserve its margins.
Action steps:
- If you have a Riester contract, request a cost disclosure from your provider now
- Wait for 2027 to open a new Altersvorsorgedepot to ensure full subsidy eligibility
- Plan to contribute €1,800 annually to maximize the €480 basic subsidy
- Choose a low-cost provider, preferably a neobroker offering ETFs under 0.1% management fee
The Riester era is ending not with a bang but with a depot. For millions of Germans, that can’t come soon enough.
