Riester Pensions – Taking Stock After 15 Years

15 years after the introduction of the Riester pension, we take stock of what the Riester pension has achieved and assess reform options. Since its introduction, the Riester pension has been met with a broad response. For instance, on the supply side more than 5,000 different Riester contracts are available, and on the demand side 16.5 million contracts were concluded until 2016. We use household-specific data from the survey “Saving and Old-Age Provision in Germany” (SAVE) and find that 44 percent of the subsidy-eligible households own at least one Riester contract — pensions are particularly popular among families with children. While only about 20 percent of the households in the lowest income quintile hold Riester contracts the share is around 60 percent among those in the highest income quintile. Nevertheless, Riester pensions are by far the most common form of supplemental pension provision among low-income households. However, the Riester scheme is being criticized for not having reached universal coverage. Additionally, the pension scheme is criticized for a lack of market transparency, high average costs and the use of specific mortality tables. The low interest rate policy of the ECB and the associated warranty costs are also increasingly blamed for market stagnation. Reform options range from establishing general rights for obtaining subsidies to providing better information and the introduction of standard products and obligatory supplementary savings. In cooperation with Christina Maier an expertise was submitted to the German Council of Economic Experts. It was published as a working paper in both the MEA discussion paper series and the Council of Experts’ working paper series. The results were partially incorporated into the German Council of Economic Experts’ annual report 2016/17 and presented to the Federal Government in November 2016.