Riester pension: The old-age provision grows strongly with allowances

Experts fear that the statutory pension will no longer suffice as a retirement provision in the future. This is why the state will support you if you also save something for your old age – for example with a Riester pension. You will not only benefit from tax advantages, but will also receive a few allowances. The idea behind it: You pay part of it yourself and the state pays the other part. And so over the years, you will accumulate a little money with which you can top up your statutory pension. What allowances you can count on and what you have to do for them is explained here.

What allowances are there?

The state supports Riester savers by “rewarding” them with allowances: a so-called basic allowance and, if necessary, child allowances.

Basic allowance

The basic allowance is 175 euros per year (since 2018, before that it was 154 euros). The amount of this allowance is fixed; it is therefore not linked to specific factors such as income. The prerequisite, however, is that you pay at least four percent of your pensionable income per year into your Riester pension.

Tip: If you conclude a Riester contract before the age of 25 and apply for the first supplement, you will also receive a one-off career starter bonus of 200 euros.

Child allowances

Child allowances depend on the number and date of birth of your children. You get:

  • 185 euros for each child born before 2008.
  • 300 euros for each child born in 2008 or later.
  • You will receive these child benefits for as long as you receive child benefit. So if your daughter or son is doing an apprenticeship or studying, you can count on this support up to a maximum of 25 years of age of your children.

But please note: married couples only receive the child allowance once – even if both spouses have a Riester contract. It is therefore best if only one of them applies for the child allowance.

Who receives the allowances?

Every Riester saver is entitled to the supplements. But not everyone is entitled to “Riester”. Only those who have a statutory pension plan are entitled to it. For example:

  • Employees who are subject to mandatory retirement.
  • Self-employed and freelancers subject to pension insurance
  • Persons receiving unemployment benefit I
  • Persons receiving sickness benefit
  • Persons who receive Hartz IV benefits
  • marginal part-time workers who are not exempt from pension insurance
  • The legislator names this group of persons directly entitled.

There is also the group of indirect beneficiaries. These are those who are not actually allowed to conclude their own Riester contract but who are married to a Riester saver. For example, housewives and househusbands, self-employed persons or students who are not members of the statutory pension scheme.

Such spouses of a Riester saver can conclude their own contract. They only have to pay a basic amount of 60 euros per year into this contract in order to receive the full basic allowance. This means that for the equivalent of only 5 euros per month, indirect beneficiaries receive 175 euros per year from the state on top.

How do the allowances affect the Riester pension?

Like your contributions, the allowances flow into your Riester contract account. The credit balance grows accordingly and is invested profitably over the entire term. All the more so in the end, your Riester pension will be higher.

And another advantage is that the allowances enable you to reach the sum of 4 percent of your gross income much faster. Because the allowances are also included in this calculation. The more allowances you receive, the less you have to pay in premiums yourself.

The table below illustrates how the allowances reduce your own annual savings contributions (“own contribution”). For the children, the calculation was based on a date of birth from 2008 and therefore a child allowance of 300 euros.

It is even possible that with the allowances alone you will reach the required minimum deposit of 4 percent of your gross income without paying a single cent yourself! This is possible if you earn little (so that the minimum of four percent of your gross income is quickly reached) and have many children (i.e. receive many child allowances). In such a case, however, the legislator requires that you – like indirectly entitled persons – raise at least 60 Euros per year to be able to benefit from the allowances.

By the way: You may in principle pay as many contributions to the Riester pension as you wish. However, only a maximum amount of 2,100 euros per year (own contribution + allowances) is subsidised. This means that anything over and above this sum cannot be deducted from tax as special expenses.

Do the bonuses exist automatically?

No. You have to apply for bonuses every year. There are two ways to do this.

  • Option 1: The easiest way is to give the provider a power of attorney by which he may automatically apply for the allowances every year. This is then called a permanent allowance application. Please note: If the allowances change – for example, if a child is born – you must reapply for the permanent allowance! If you do not do this, you will not be able to use the child allowances. Even if a child is no longer entitled to child benefit, you must notify the provider.
  • Option 2: You apply for the supplement yourself. To do so, fill out the “Application for the pension supplement” and submit it to your provider. Your provider will forward it to the “Zulagenstelle für Altersvermögen”. You have until the end of the year after next to submit your application; the application for the Riester incentive for 2019 must therefore be submitted by the end of 2021 at the latest, otherwise you will not receive any allowances for 2019. You must repeat this procedure every year.