Riester pension: Financial expert criticizes lack of returns and high fees

Riester pension: Financial expert criticizes lack of returns and high fees

According to a report by www.tagesschau.de, the Riester pension has been controversial in Germany for years. A current analysis of 65 Riester insurance companies showed that on average 24 percent of the money paid in was used for fees, with every third Riester policy even withholding 30 percent for fees. In comparison, statutory pensions incur administrative costs of around three percent.

It was also found that German insurers only took out 125,200 new Riester insurance policies last year, a decline of almost 60 percent compared to the previous year. This trend shows that the Riester pension is becoming increasingly unpopular in Germany, even though there were over a million new contracts in 2009.

Experts suggest that Germany should rethink private pension provision and advocate a system change to a state-organized pension product based on the Swedish fund. There is a mandatory stock pension in Sweden, and over the past 20 years the Swedish fund has generated an average return of around eleven percent.

There are also suggestions to improve private provision in Germany. This includes investment options with higher risks but also higher returns, better comparability of products and a simplification and flexibility of private provision.

However, some old-age security researchers, such as Jutta Schmitz-Kießler, are counting on strengthening statutory pension insurance. She proposes revitalizing the alliance between employees, employers and the welfare state in order to restore better pension levels. This could be achieved, for example, by civil servants and the self-employed also paying into the pension fund, eliminating the contribution assessment limit, increasing wages and promoting the employment rate of women.

Overall, current developments show that the Riester pension in Germany is facing major challenges and a possible system change or reform could be necessary in order to sustainably improve old-age provision. Declining consumer confidence and lack of profitability could impact the entire industry in the long term.