Riester-Rente reform at risk before elections in September

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The German government coalition CDU/CSU and SPD may not deliver the promised reform of the third-pillar pension system Riester-Rente during the current legislative period.

The ministry of finance had been working with insurance companies and banks on possible changes to the Riester-Rente, sending positive signals on the submission of a draft law for a reform.

The government was involved in a dialogue with providers of Riester-Rente pension products, associations for the protection of consumers and social partners, to fulfil the agreement signed in the coalition programme to change private old-age provisions in the current legislative period.

But the mood has suddenly shifted. According to Bild Zeitung, which cites an internal document issued by the finance ministry, the reform of the Riester-Rente is not on the list of legislative proposals planned up until the general elections on 26 September.

The finance ministry told IPE in a statement: “There is no news on the [Riester-Rente] topic”.

The government is still in talks with providers of Riester-Rente products, consumer associations and social partners “to further develop the private old-age provision”, it said.

The ministry added in the statement that, however, it has become “once again clear” that there are “very different views and proposals” on the future of tax-subsidised private pension provisions.

Bild, the German tabloid, reported that a letter was sent by Hans Joachim Reinke, member of the management board at Union Investment, asking finance minister Olaf Scholz to “urgently” act on the Riester-Rente reform.

Union Investment told IPE that Reinke had written a letter not only to finance minister Scholz but also to labour minister Hubertus Heil, due to the urgency of the matter, and so far had not yet received a reply.

The labour ministry declined to comment on the letter sent by Union Investment, and on the possibility that the reform of the Riester-Rente would not happen in this legislative period.

Union Investment believes that a “far-reaching reform” of the Riester-Rente is urgent in view of “extremely” low interest rates and the stagnation with regard to the appeal and the spread of the product, a spokesperson said.

For this reason insurers associations, investment companies and the Association of Private Bausparkassen have drafted a five-point plan to radically simplify the Riester-Rente:

design of a simple standard product;
transparent subsidies intuitively easy-to-understant by everyone;
access to the product by all, including self-employed;
lexible guarantees;
easier procedures on claiming bonuses to reduce by over 90% the approximately 800,000 claims per year.

Possible reform?

Christian König, managing director at the Association of Private Bausparkassen, believes “there is still time” to put a reform project in place agreed by the coalition programme at the beginning of the legislative period.

“If a draft law is introduced by March, the project [for a reform] could still work”, he told IPE, adding that the government has once again confirmed that the process to shape a definitive idea on the Riester-Rente is “complex [and] has not yet been finalized”.

A reform is only possible in the next few months of the current legislative period, the spokesperson at Union Investment said, adding that it would be very unlikely if a reform process is initiated after that because the political campaign will start, and time will pass before a new government will work on the issue again.

This delay “causes massive damage to people with private old age provision, who cannot continue to take advantage of the capital market”, he said, adding that providers’ hands were tied with legal requirements and rules on guarantees that force them to invest in asset classes with little interest and therefore cannot offer products that achieve higher returns.

“It is even more incomprehensible that, since simple and inexpensive proposals to change the Riester-Rente have long been on the table, the responsible ministries are delaying the reform,” the spokesperson concluded.