The introduction of a new state-subsidized retirement savings account could pose a multi-billion euro risk to the federal budget. According to the economic magazine “Capital”, the concern stems from the generous state subsidies required and the anticipated drop in tax revenues. Political quarters in Berlin have characterized the scheme as a “ticking time bomb” for the federal budget.
A representative from the responsible finance committee of the Bundestag conceded that the current assumptions about cost development within the legislative draft are “optimistic”.
The new retirement deposit aims to allow workers and self-employed individuals to save for retirement through subsidized, low-cost stock funds and ETFs starting January 1, 2027. The initiative is expected to offer provisions for almost all employees, potentially covering around 42 million people in Germany who could access the government-backed deposit and associated subsidies. The deal is viewed by most experts as a major step forward, particularly because it is intended to replace the highly criticized Riester pension plan.
However, while banks, brokers, and fund providers anticipate a massive rush to adopt the new accounts, the Federal Ministry of Finance has calculated the adoption rate extremely conservatively. The Ministry’s financial assessment for the new law predicts that annual losses in tax revenue could climb to approximately 880 million euros by 2030.
Regarding state subsidies, the Ministry merely assumes that the decline in Riester subsidies, observed in previous years, will halt thanks to the new market offering. In reality, the number of active Riester savers has been falling for years, recently shrinking to fewer than ten million people. Consequently, the average spending on state subsidies has declined by 175 million euros per year. The government’s supporting documentation claims that “this decline will be stopped by the reform, as expiring legacy contracts will be replaced by contracts in the new product world”. When pressed by “Capital”, a ministry spokesperson clarified that calculations on the financial impact of draft laws “do not contain forecasts for future changes in case numbers”.
Curiously, the magnitude of the risk grows with the success of the scheme. Considering that the federal government spent nearly four billion euros annually just on the approximately ten million active Riester policies, coalition representatives admit that if between ten and twenty million people establish a new retirement deposit, annual costs could escalate into the tens of billions, far exceeding current official ministry estimates.
This much is precisely what banks and fund companies are anticipating. Providers interviewed by “Capital” stated that they are calculating for at least a doubling of the state-subsidized retirement agreements.
