What does Riester pension mean anyway?
The Riester pension is a way of making private provision for old age. As with a normal pension, each saver pays a certain monthly contribution into a selected Riester model during the “savings phase”. For this he receives direct allowances from the state and tax advantages.
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The full support is available if you pay in four percent of your previous year’s gross income. Anyone who pays less than four percent receives only a proportion of the allowances and then later also receives a lower pension.
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Consumers with a Riester pension receive a basic allowance of up to 175 euros per person per year. In addition, families with children can receive a child allowance of up to 185 euros for children born up to the end of 2007 and up to 300 euros for children born after 2008. These allowances then reduce the amount that must be spent from your own resources. An example: A man with two children with an annual gross income of 40,000 euros has to pay 1,600 euros annually for the full funding. This contribution is reduced by 175 euros basic allowance and 600 euros child allowance to 825 euros per year.
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A maximum of 2,100 euros per year that have flowed into a Riester contract can be deducted from the tax. In the so-called “payout phase”, the saver then receives his Riester pension. This phase begins when you retire, but at the earliest at the age of 62 if the contract was concluded from 2012
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What forms of Riester are there?
In contrast to a normal old-age provision, you do not have to transfer a certain contribution to an insurance company, but can invest the savings in various models in a targeted manner.
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Colloquially, a distinction is made between “Money riester” and “Residential Riester“. “Geldriester refers to savings contracts from which a lifelong pension is paid from the start of retirement,” explains Andrea Heyer, financial expert from the consumer center. It can be used in three ways: with insurance, a bank savings plan, or a fund. “With Wohnriester we mean the financing of residential projects we use ourselves,” the expert continues. For example, Riester building society loans or Riester combined financing can be considered.
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Which form is best also depends on the risk appetite of the saver. Those who invest in low-risk bank savings plans or insurance cannot expect high returns. With fund savings plans, on the other hand, there is at least the chance of a higher return. Since the individual options have individual advantages and disadvantages, it is advisable to seek advice from an expert before concluding.
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Who is Riester interesting for?
Riest is not allowed for everyone, only those who pay into the statutory pension fund. There are special regulations for civil servants, trainees and the self-employed. According to the experts at the consumer advice centers, “a subsidized, inexpensive Riester contract is in principle not a bad thing.” However, it is particularly worthwhile for families with children, low-wage earners and young people.
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For families with children, the allowances that are entitled to regardless of income are particularly worthwhile. A family with two children born before 2008 is entitled to € 720 direct state funding. If the children were born after 2008, the entitlement is even 950 euros. Low-wage earners in particular then only have to pay a small amount of financial resources out of their own pocket.
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Even for low-wage earners without children, Riester is sometimes worthwhile, since the contributions to be paid are low and the allowance of 175 euros is always available. In the past, the Riester pension was offset against the normal pension. This means that there was no increase in the basic security that everyone in Germany is entitled to for low-wage earners. Things have changed since 2018: the normal pension is topped up regardless of private pension provision up to the basic security, if this is lower. In addition, Riester savers can keep an additional 200 euros from their private retirement provision.
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Older workers are more likely to calculate how much money the statutory pension will bring them. You know whether Riester can still bring a decisive profit. Young people, on the other hand, do not know how much pension they will one day receive.
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Problems with the Riest
Problem 1: Termination hardly possible
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If you want your credit to be paid out early, you often lose a lot of money. Because there is a risk of reclaiming all subsidies – all allowances and tax savings. In addition, many contracts provide for high administration fees in the early years, which you won’t get back even if you cancel. Savers should therefore ask the providers about commission-free offers with low or even no closing costs.
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However, it is possible to transfer the existing capital to another Riester contract. In addition, a Riester contract can be made dormant / non-contributory: During this time, nobody has to pay anything.
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If the beneficiary dies, the contract with the saved assets can be inherited. However, depending on the location and contract, there are a few things to consider, which is why independent advice is very important before concluding a contract.
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Problem 2: Taxes in old age
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The crux of the Riestern: The money that is then paid out at retirement age must be taxed. But since most people have a lower tax rate in old age than in professional life, they still benefit from it in the end.
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Problem 3: management fees
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Above all, high commissions and administrative costs have to be paid at the beginning of the contract period. No matter how good the return on a contract is – if the fees are too high, the bottom line is that it does not help the saver. That is why savers should definitely obtain several offers and compare them. The actual costs are decisive here.
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Problem 4: No one-time full payout possible
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After a normal old-age provision contract with an insurance company has expired, you can usually choose between a one-time payment and a monthly annuity payment.
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The full one-time payment is not possible with Riester contracts. Savers only have the option of choosing for or against a one-off payment of 30 percent of the total capital (20% for contracts concluded before 2005). This one-off amount, however, reduces the later retirement benefit and must be fully taxed.
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Conclusion: Advantages and disadvantages of Riester
Whether a Riester contract should ultimately be part of the individual retirement provision cannot simply be answered with “yes” or “no”. Ultimately, however, almost everyone can benefit from the Riester pension, as they are subsidized and not everything has to be paid for from their own resources. Low-wage earners and large families have the advantage that even a proportionately small contribution leads to full state funding. Of course, riches are not to be expected.
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