Why many Riester pensioners would have to live to be 99 years old

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Older couple at the lake: Many Riester contracts are only profitable if you live for a very long time

Photo: Patrick Pleul / dpa

The state-funded Riester pension is actually intended to help secure the standard of living in old age.

But many Riester and Rürup contracts apparently cannot even compensate for the losses caused by inflation with their returns.

At least that's what calculations presented by the consumer protection organization Finanzwende suggest on Wednesday.

“The possible returns are meager and not a glory for the insurance industry,” said Britta Langenberg, head of consumer protection at the non-governmental organization.

For their calculations, the experts examined a total of 111 Riester and Rürup products for state-subsidized retirement provision.

Accordingly, only two Rürup products and not a single Riester product achieve a return of two percent per year over the entire contract period.

The mark corresponds to the medium-term inflation target of the European Central Bank.

Riester and Rürup pensions are two forms of state-sponsored pension provision.

The Riester pension is primarily intended as an additional private component to top up the statutory pension.

As a customer, you pay money in every month and also receive an allowance from the state.

The basic allowance is 175 euros per year, and for each child there is an additional 185 euros (up to the year of birth in 2007) or 300 euros (from the year of birth in 2008).

The Rürup pension is aimed primarily at self-employed people.

With Riester pensions, the savings at the start of retirement are usually converted into a lifelong pension.

According to the consumer protection organization, childless consumers with a saved sum of 46,700 euros at the start of their retirement could expect an average monthly pension of 121 euros under a typical contract.

With Rürup contracts, insured people received 130 euros back per month from a capital of 50,200 euros.

The policies are therefore hardly attractive for many customers, says financial transition expert Langenberg.

If you don't want to lose money with Riester or Rürup pensions after deducting inflation, you have to be very old - 99 years for typical Riester contracts, even 100 years for Rürup contracts.

In their sample calculation, the consumer advocates used data from the product information sheets and made certain basic assumptions, such as life expectancy, costs and the so-called profit sharing.

The experts admit that the return can be higher in individual cases - for example if you have several children and the state provides more money accordingly.

Nevertheless, the consumer advocates' verdict is clear: "We cannot determine any customer benefit from the products," says actuary Axel Kleinlein, who carried out the calculations.

The weak return on the contracts can be explained primarily by the manageable payouts during retirement, according to the expert.

Insurers also make unfavorable assumptions about life expectancy for customers.

“The numbers show very clearly that we need to talk about the future of state-sponsored pension provision,” says consumer advocate Langenberg.

“For many people, the security of a lifelong pension comes at too high a price.”

Insurers reject criticism

The insurance industry calls the financial transition calculations “excessively pessimistic.”

For example, unused safety allowances based on life expectancy are not taken into account, according to the General Association of Insurers (GDV).

At the same time, consumer advocates assumed “maximum cost assumptions.”

However, the industry association also admits that a reform of pension provision is overdue.

Insurers want more flexible guarantees in the savings phase.

“From the perspective of the insurance industry, a guarantee level of 80 percent would be a very good compromise between security and returns,” said GDV Managing Director Jörg Asmussen.

This would make significantly higher returns possible than before, but at the same time savers would be protected from high losses.

The Riester pension has been considered a case of reform for years, and the number of contracts has been declining.

In view of numerous problems, a committee of experts last summer spoke out in favor of a state-organized stock fund for private pensions.