Consumer‑protection organisations have criticised the German federal government’s new private pension scheme and called for adjustments. They argue that the proposed annual fee ceiling of 1.5 % of the total savings would make the model, designed to replace the Riester pension, unlikely to succeed.
Hermann‑Josef Tenhagen, chief editor of Finanztip and the “Süddeutsche Zeitung” stated, “A cost cap of 1.5 % is far too high. It is a concession to banks and insurers. A cap of 0.5 % for all subsidised contracts would be absolutely adequate”. The financial sector, in turn, justifies its fees mainly by the effort required to sell the products and to manage the accounts.
The draft pension‑reform law, submitted by Finance Minister Lars Klingbeil (SPD), obliges banks and insurance companies to offer a standard product whose parameters the state will set. Savers receive tax‑based subsidies, and providers may charge up to 1.5 % of the contract balance annually for this standard product. Although banks and insurers can still offer other, higher‑priced products that would also receive subsidies according to the plan, the law is currently under discussion in the Bundestag and is slated to be passed by the end of March.
Both the Union (SPD‑led) and SPD factions are looking to respond to the criticism. CSU’s Florian Dorn, who is negotiating the draft for the Union and sits on the federal pension commission, told the newspaper, “There are plenty of reasons to lower the cost cap, at least for the standard offering”. He added that the draft is “in the right direction” but was surprised by the 1.5 % ceiling. He expects that new standard products will be less expensive than those under the former Riester scheme, with many providers likely offering effective costs of 0.5 % or less, and that competition in the market will be essential.
Within the SPD, too, demands for corrections are made, albeit without naming individuals, in circles familiar with the negotiations. They also find a 1.5 % ceiling “too high” favouring a maximum of 0.5 %, and some even suggest that 0.1 % or as low as 0.05 % would be achievable.
Although a fee of one percent per year may sound modest, it can have a substantial impact over the decades a pension contract typically runs, especially when compounded interest is considered. Finanztip calculated this effect in examples for the “Süddeutsche Zeitung”.
In one illustration, a family contributing 150 € per month and receiving a subsidy for two children would end up with roughly 227 000 € after 40 years, assuming a 6 % annual return and a 1.5 % fee. With a 0.5 % fee, the amount would increase by nearly 68 000 € to about 295 000 €. At a 0.2 % fee, the total could exceed 319 000 €, more than 92 000 € larger.
Finanztip is part of a non‑profit foundation devoted to educating consumers about financial matters.
