Germany Learns to Save for Old Age

The governmental subsidized old-age provision, the Riester-pension scheme, is gaining an enormous increase in popularity. Although not having found much approval by savers in the first few years when introduced, it has now emerged as saver’s absolute favourite amongst private old-age provision models. But despite the growing importance of the Riester pension very few detailed studies have examined these developments so far.

Many questions remain to be answered: What sort of people take out Riester pensions and profit from state subsidies? Has the recent growth in the pension’s popularity also reached those segments of the population who have not had a Riester pension so far? Why do some people not open a Riester pension plan? Answers to these questions are provided by MEA’s evaluations of the SAVE data - a unique survey of savings behaviour and old age provision in Germany which MEA has regularly undertaken since 2001. The data confirms the dynamic development and reveals a general rising tendency of private pension provisions: 17per cent of all working households held a Riester policy by the end of 2005, almost thrice as many as at the end of 2002. In addition, German savers also entered increasingly into other private pension policies, thus causing a doubling in the section during this period.

The Riester pension is especially popular with large families with at least four children. Growth was strongest in this section since 2002 and more than a fifth of households in this section had taken out a Riester policy by the end of 2005. Lower income groups however, which could also profit of a high level of state subsidy, are much less likely to have a Riester pension than people in middle and higher income brackets. Nevertheless, Riester pensions are already the most popular form of saving for old age among the people in lower income groups, thereby superseding occupational and other forms of private pension. Consequently it is satisfying to see that this trend has begun to reach people in the bottom 40 per cent income group, thereby adjusting the distribution to that of higher income brackets.

Finally the SAVE data also reveals a crowding-out effect between old-age provision and other forms of saving. People for whom an important savings motive is to buy their own home are less likely to take out a Riester policy. And likewise does the desire to bequeath assets prevent Riester pension. As always in life, it is only possible to spend a euro once. Thus the conclusion for policymakers is to set decided priorities with the use of state support.

Das Sparverhalten deutscher Haushalte: Erste Erfahrungen mit der Riester Rente.
MEA Discussion Paper: 114-06, Axel Börsch-Supan, Anette Reil-Held, Daniel Schunk.