The German insurance association, GDV, has voiced its position regarding the reform of the country’s third-pillar pension system, by proposing the Bürgerrente breaks away from the full guarantees of Riester-Rente products, and making private products available to a larger group of people.
The Bürgerrente – or citizen’s pension – is a form of state-subsidided private pension provision offering 80% guarantee on the contribution paid, down from 100% foreseen currently with the Riester-Rente, to achieve higher returns on investments.
The state would pay 50% of contributions for the Bürgerrente as subsidies, meaning that for each euro paid the state adds €0.50, the association explained, making the citizen’s pension model easier to understand, reducing bureaucracy and ending the process of reclaiming allowances under the current system.
The amount of contributions eligible to receive subsidies are limited to 4% of the total amount used to calculate and deduct contributions in the statutory pension insurance to benefit middle-income groups.
The subsidy would be linked to the trajectory of income and inflation, while today’s private pension mechanism does not envision the adjustments of the allowances, and contributions increase every year with rising wages, the association said.
Contributions to the citizen’s pension remain tax-free, but the benefits would be fully taxed by way of subsequent taxation in the payment phase.
The German insurance association is proposing a standardised product sold digitally, easier to understand than the current Riester-Rente. The group of those entitled to subsidies under the Bürgerrente model will expand to include self-employed, civil servants, and unemployed people, said GDV president Norbert Rollinger.
The payout would become flexible, with a partial payment of 30% of the accrued pension assets at the beginning of the retirement phase, plus a period of, for example, 10 years for the providers to pay out at least one annuity.
If the insured person dies earlier, the remaining guaranteed capital would go to the surviving dependents.
“After more than two decades without fundamental changes, private old-age [pension] provision needs a fresh start,” Rollinger said last week during a conference to introduce the insurance industry results for 2022 and a 2023 forecast.
He added: “The Riester-Rente is too complex and bureaucratic to enable subsidised pension products to spread further. We are therefore bringing our idea of a citizen’s pension for the discussion that has now begun.”
The German government has started discussing the reform of the third pillar pension system in a so-called focus group with academics, associations and social partners on 24 January.
GDV is involved in the discussions alongside the Investment Funds Association (BVI), the occupational pensions association aba, the Confederation of Employers’ Associations (BDA), trade union Deutsche Gewerkschaftsbund (DGB), the Federation of Consumer Organisations (vzbv), and Stiftung Warentest.
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