The German government has announced a comprehensive overhaul of the country's private pension system, introducing significant changes intended to make retirement savings more attractive and accessible. The reform, set to take effect in 2027, is designed to address long-term sustainability of pensions and provide greater flexibility and benefits for savers.

New Retirement Savings Accounts Introduced

At the core of the reform is the introduction of the "retirement savings account," a new investment vehicle aimed at giving individuals more options in planning for their future. Savers will have the ability to choose between products focused on security with guaranteed returns and those oriented towards higher, though potentially riskier, yields. This dual approach is intended to allow individuals to tailor their retirement investments according to their personal risk tolerance and financial goals.

Standardized Retirement Account for Simplicity

For those seeking a straightforward solution, a standardized retirement account will be made available. This product is designed to meet specific legal requirements and simplify the selection process for consumers. Importantly, the reform introduces a cap on the overall costs associated with these accounts, limiting effective charges to a maximum of 1.5 percent over the contract term. This measure ensures that a larger share of both contributions and investment gains will directly benefit the saver's retirement fund.

Revamped State Contributions and Additional Benefits

The reform also restructures state support for private retirement savings. The new system offers a more transparent and generous incentive framework: eligible individuals will receive a basic annual subsidy of 30 percent on contributions up to 1,200 euros, and 20 percent on amounts between 1,201 and 1,800 euros per year. This direct link between contributions and government support aims to make the system more comprehensible and to encourage higher levels of personal savings.

Targeted Support for Young Adults and Families

A notable feature of the new policy is its focus on younger savers. Individuals under the age of 25 at the start of the contribution year will receive a one-time bonus of 200 euros in addition to the regular subsidy. This initiative is designed to motivate early engagement in retirement planning, enhancing the long-term benefit of compound savings.

Families stand to benefit as well, with revised child allowances. For each child, savers will receive an annual subsidy equivalent to 25 percent of contributions up to 1,800 euros, capped at 300 euros per child. This provision is intended to ease the financial burden on families and ensure that parents can continue to build retirement savings even while managing additional expenses associated with raising children.

Flexible Payout Options Upon Retirement

The reform brings increased flexibility to the distribution phase of retirement savings. In addition to traditional lifelong pension payments, retirees will have the choice to opt for long-term payout plans extending at least until the age of 85. This change allows individuals to better align their retirement income with personal circumstances and preferences.

Transition Arrangements for Existing Contracts

Those with current Riester pension contracts will not be required to make immediate changes. The reform includes transitional rules allowing existing contracts to either continue under the current framework or be converted to the new system, depending on the individual's preference.

By introducing these sweeping changes, the German government aims to modernize the private pension landscape, increase participation rates, and provide greater financial security for future retirees. The reform reflects a response to longstanding calls for more efficient, transparent, and equitable support in private retirement planning.