Members of the Expert Council for Economic Affairs are urging the German government to replace the current Riester pension scheme with a new model for private retirement provision.
Instead of the planned early-start pension initiative for minors, the council proposes the introduction of a “new, eligible retirement savings depot” according to an opinion piece authored by Ulrike Malmendier and Martin Werding in the Frankfurter Allgemeine Zeitung (FAZ). They suggest that existing Riester contracts should be smoothly transitioned into the new system on a voluntary basis.
“This would allow Germany to regain trust in state-supported provision, enable asset building for broad swathes of the population – and finally foster a genuine capital market culture” the economists, who comprise the government’s key economic advisory body, stated.
The core of the proposed retirement savings depot would be a “simply structured standard product” mirroring a successful model implemented in Sweden. The new design would be envisioned to complement the existing early-start pension program.
The Riester pension scheme has reportedly become synonymous with low returns, elevated costs and bureaucratic complexity. Current data indicates that only 40 percent of eligible individuals possess a Riester contract, with a quarter of those no longer actively serviced. “These figures demonstrate a lack of citizen trust in capital-based pension schemes with state-defined frameworks” the authors observe.
