The statutory pension will not be sufficient in the future to maintain the usual standard of living in old age. It is necessary to take personal responsibility for retirement planning. That is why the government created the Riester pension scheme.
The Riester pension helps people build their own retirement savings to compensate for reductions in the statutory pension insurance. A key advantage: This private pension is subsidized by the state.
What is the impact of the funding?
Riester contracts receive support through government subsidies and tax advantages as a form of private retirement savings. Government support is particularly beneficial for families and low-income earners. Various forms of government assistance have been developed to provide Riester savers with concrete support.
- The state allowance
The Riester pension scheme is subsidized by the state through allowances on the customer's contributions. These allowances include a basic allowance and a child allowance
In 2018, the basic allowance amounted to €175 per person. The child allowance amounted to €300 annually (for children born before January 1, 2008, €185 annually). The allowances are transferred directly to the Riester contract.
It is important to note that the child allowance is only paid if child benefit has been granted to the beneficiary for the child in question. The child allowance is discontinued if the entitlement to child benefit ceases. Any allowances that may have been overpaid must be repaid.
- The bonus for young professionals
This type of retirement savings plan is particularly worthwhile for young professionals up to the age of 25. In addition to the regular subsidies, you will receive a one-time bonus of €200.
- Tax savings
The Riester pension also offers tax advantages, as government subsidies and contributions can be claimed as special expenses on your income tax return. To do this, you need to complete Schedule AV of your income tax return.
The tax office then checks whether the special expenses deduction results in greater tax savings than the allowance ("favorable treatment test"). If the special expenses deduction is more advantageous, this results in an additional tax reduction.
Who benefits from the special expenses deduction?
Whether the special expenses deduction proves worthwhile depends on marital status, the number of children, and income. Normally, it primarily benefits singles without children. However, the Riester subsidy via the allowance is significantly higher overall for families with many children.
Maximum and minimum contributions for Riester pensions
After deducting the government subsidy, the minimum personal contribution amounts to 4 percent of annual income. Anyone who wishes to can also contribute more to the Riester pension plan. However, government support is limited to the maximum special expenses deduction – €2,100 per year including the subsidy.
Civil servants are required to have their payroll office transmit the previous year's income to the Central Allowance Office for Retirement Savings (ZfA) in the first quarter of each year. This requires the civil servant's consent to their payroll office.
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