Germany is significantly changing the private pension insurance system. From January 1, 2027, citizens will be able to use a new type of state-sponsored pension investment deposit - Altersvorsorgedepot, which allows investments in the capital markets without a mandatory guarantee of the deposited funds. The reform has already been adopted by the Bundestag, approved by the Bundesrat and enters into force after its final legislative completion in May 2026.
The new model is designed as a successor to the Riester system for new contracts. Existing Riester contracts will not be automatically terminated and can continue to be serviced, but after the beginning of 2027, new contracts under the old model will no longer be concluded. Those who wish will be able to voluntarily transfer their accumulated funds to a new product.
ETFs and funds can now be part of the state-sponsored pension
One of the most significant changes is the removal of the mandatory capital guarantee in the new pension depot. Savers will thus be able to invest in eligible financial instruments, including stocks, funds and exchange-traded funds - ETFs. The aim is to increase potential returns over a long investment horizon.
For people who prefer lower risk, products with a guarantee remain. The legislation allows for options in which 80% or 100% of the deposited funds are guaranteed at the beginning of the payout phase.
In parallel, a standardized pension depot is being created, which should be easier to choose and manage. With the standard product, the effective annual costs are limited to 1%.
Up to 540 euros annual basic subsidy
The way in which the state incentivizes personal contributions is also changing.
For the first 360 euros that a person contributes in a year, the state adds 0.50 euros for each euro of their own. This means a maximum support of 180 euros for this part of the savings.
For the next 1440 euros personal contributions, the state adds 0.25 euros for each euro contributed. Thus, the maximum basic subsidy reaches 540 euros per year, when personal contributions total 1800 euros.
Contributions can also be made above this threshold – up to 6840 EUR per year, but the amount above 1800 EUR no longer increases the amount of the direct state subsidy.
Additional funds for parents and young people
Families receive a separate incentive. For each child, one of the parents can receive a state supplement of 100% of the personal contributions up to 300 EUR per year. Thus, the full child subsidy reaches 300 euros per child and can be obtained with a personal contribution of 25 euros per month.
A one-off bonus of 200 euros is also provided for people who conclude a private pension insurance contract before they turn 25.
The self-employed also gain access
Another important change is the expansion of the circle of persons who can benefit from state support.
In addition to employees, the new system will in principle also be available to the self-employed, freelancers and entrepreneurs, as well as to certain members of occupational pension schemes.
This is a significant change compared to the previous model and expands the potential market for banks, investment companies and other providers of pension products.
The tax principle remains
Germany retains the deferred model Taxation. Contributions and government subsidies benefit from tax breaks during the accumulation period, while payments upon retirement are taxed at the recipient's individual tax rate.
There is also the possibility for the tax administration to check whether the saver is entitled to an additional tax advantage over the subsidies received.
The accumulated funds are generally intended for retirement age, but the law retains some exceptions, including the possibility that the funds can be used under certain conditions to acquire one's own home.
Higher returns also mean higher risk
The main difference compared to traditional guaranteed pension products is that in a deposit without a guarantee, the value of investments may fluctuate.
The higher share of stocks and ETFs increases the potential for returns over a long investment period, but does not guarantee a specific result. In the event of adverse market developments, the value of the accumulated capital may be temporarily or permanently lower than expected.
That is why the reform leaves a choice between an investment product without a guarantee and options with the retention of 80% or 100% of the invested capital.
A new market for the financial sector
The reform is important not only for future retirees. It also opens up a serious new market for banks, fund managers, insurers and ETF providers.
The Bundestag justified the reform by saying that private pension insurance should be made cheaper, more flexible and more capital market-oriented, after the Riester system was criticized for its complexity, costs and limited yield potential.
With the new pension depot, Germany is taking a significant step towards wider use of capital markets for long-term savings. For the financial industry, this means competition for potentially millions of new investment accounts, and for savers – more choice, but also greater personal responsibility for the risk taken.