The Riester pension helps employees and civil servants, as well as their spouses, build private retirement savings in the form of an additional pension. Various Riester pension product options are available for retirement planning, including the Riester pension insurance (as a classic annuity insurance with profit participation or as a fund-linked solution), Riester fund savings plans, and Wohn-Riester (home pension scheme).

The government supports you with allowances of €175 as a basic allowance for adults and up to €300 per child for the Riester pension as retirement savings. Young professionals under 25 receive an additional bonus of €200.

Additionally, you can deduct contributions of up to €2,100 per year from your taxable income.

Please note that the pension payments received later must be taxed.

In 2002, the German government reduced the level of the statutory pension in order to keep contributions stable. At the same time, private retirement savings gained greater importance. 

To encourage more people to save for retirement, the Riester pension was introduced. This financial retirement plan makes it more beneficial for individuals to actively save, thanks to government allowances on contributions and tax advantages.

You can choose between a classic pension insurance, a fund savings plan, or the so-called Wohn-Riester (home pension scheme). With the latter, you use government support to finance a property you live in. By living rent-free in retirement, you can reduce your monthly expenses.

The basic principle "Riestering" works like any other pension insurance: 

You make monthly contributions to an insurance plan or a savings plan in order to receive an additional pension in retirement. The key advantage of the Riester pension is the government subsidies (support)

These subsidies make it possible to build up a relatively high level of financial retirement savings even with small contributions. 

What subsidies does the government provide for your pension?
Riester savers benefit from various allowances:

• Basic Allowance: €175 per year for each saver.

• Child Allowance: The child allowance is only given to one parent, and you must decide who will receive the allowance.

• Young Professional Bonus: If you sign your Riester contract before your 25th birthday, you will receive a one-time extra allowance of €200.

You will only receive the full government allowances for the Riester pension (retirement savings) if you also contribute to your pension plan. Therefore, the law requires that you pay at least 4% of your income subject to pension insurance contributions into the contract each year. 

However, the government supplements these contributions. It is sufficient if your personal contribution plus the allowances meet the required minimum contribution. 

If you save less, you will only receive a proportional amount of the allowances.

This type of retirement savings is only worthwhile if you are eligible for government support. The following groups are generally eligible:

• Salaried employees and apprentices
• Self-employed individuals subject to mandatory pension insurance
• Insured members of the Artists' Social Security Fund
• Participants in the Federal Volunteer Service
• Students with a mini-job subject to pension insurance contributions
• Civil servants, soldiers, and judges
• Recipients of unemployment benefits or citizen’s allowance, as well as those receiving sickness benefits
• Individuals with reduced earning capacity, full disability, or incapacity for service

In addition to individuals who are directly eligible for government support, their spouses also have access to the Riester pension. 

This rule also applies to same-sex couples in registered partnerships or marriages. The partner who is not directly eligible for allowances must contribute a minimum amount of €60 per year to the pension plan in order to receive the allowances.

Thanks to the high child allowances, the Riester pension is especially recommended for families and single parents. It allows them to build a substantial retirement fund with relatively small contributions.

High-earning singles also benefit from the Riester pension, as they can deduct the maximum contribution of €2,100 per year from their taxable income.

You can claim your contributions to the Riester pension as special expenses on your tax return. The entry belongs in Annex AV. 

However, you will not receive the full calculated tax benefit, as the tax authorities reduce the savings by the amount of allowances you have already received.

While saving into the Riester pension, you benefit from government allowances and tax advantages.

However, when the pension is later paid out, it is fully taxable—though only at the overall tax rate applicable during retirement.