The Federal Government plans to fundamentally reform private pension provision. The Pension Reform Act is intended to improve offers for securing living standards after retirement for broad sections of the population. To this end, the certification criteria are being tightened up with the aim of greater standardization, less bureaucracy, competition between providers and lower costs. A retirement savings account without guarantees will be introduced for opportunity-oriented investments, which will also be offered as a particularly simple standard product. Tax incentives are to be fundamentally simplified and designed with a special focus on small investors.
Changes to the certification requirements for subsidized retirement provision contracts:
Introduction of a yield-oriented retirement savings account without guarantees. The retirement savings account is also offered as a standard product with effective costs limited to a maximum of 1.5 %, for which decisions by pensioners are only required if they wish to deviate from the standard settings. In addition, guarantee products with guaranteed capital at the start of the payout phase are approved with two possible guarantee levels of 80% or 100%. All providers, with the exception of providers specializing in the promotion of home ownership pensions (e.g. building societies), must offer the standard product;
- Standardization of products by focusing on old-age provision and reducing bureaucracy: no more linking of old-age provision contracts with cover against reduced earning capacity/incapacity for work; restriction of survivors' cover to an optional pension guarantee period; abolition of the mandatory offer of homeowner pension support by providers;
- Switching costs: Distribution of the acquisition costs of old-age provision contracts over the term of the contract; enabling a change of provider without switching costs on the part of the transferring provider after five years;
- Payout phase: lifelong life annuity or payout plan up to the age of 85 without partial lump-sum annuity; raising the age limit to 65; introduction of a pure payout product to strengthen switching options at the start of the payout phase;
- Transparency: Standardized provision of product information on old-age provision contracts for third parties;
- Certification procedure: Applications for certification are initially deemed to be certified subject to revocation; risk-based review by the Federal Central Tax Office.
Changes to tax incentives:
- Abolition of the income-dependent minimum own contribution calculation and associated reductions in the allowance;
- Introduction of a basic allowance proportional to contributions of 30 cents for every euro of personal savings up to an annual amount of €1,200, 20 cents for every euro for annual personal contributions of €1,201 up to a maximum amount of €1,800;
- Introduction of a child allowance proportional to the contribution per child of 25 cents for every euro of personal savings up to an annual amount of € 1,200 (maximum € 300 per child);
- Reduction in the complexity of capital withdrawal for owner-occupied residential property (owner-occupied pension subsidy);
- Further measures to reduce bureaucracy (e.g. decoupling the allocation of the child allowance for parents of different sexes from the sex of the parents);
- Protection for existing pension contracts: Existing contracts can be continued with the previous subsidy, and it is also possible to switch to the new subsidy by making a declaration to the provider. It is also possible to transfer to a new pension product without incurring a subsidy;
- Improvements for existing contracts: Waiver of the mandatory partial lump-sum annuity in the case of a payout plan by consensus of the contracting parties.
Note: This is an initial draft that is intended to change the Riester pension. However, it is still unclear what the funding will actually look like later on.