Munich, Frankfurt The Riester pension is considered complex, too expensive and low-yield. That is why politicians want to fundamentally reform state-subsidised private old-age provision. The insurance industry fears falling behind in the discussion about the right product – and is now presenting an alternative concept with the citizen’s pension.
“Compared to the Riester pension, the citizen’s pension is simpler, more understandable, more sustainable and generates higher returns,” GDV President Norbert Rollinger advertised the new proposal at the annual media conference on Thursday.
The citizens’ pension is intended to eliminate the main points of criticism of the Riester pension. This also means that customer deposits are no longer completely guaranteed, but only 80 percent. For example, insurers could invest customer funds more than before in the stock market and thus in a more yield-oriented manner.
GDV wants reform before the end of this election period
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Another essential component is that the state subsidy should be attractive for low and medium earners. For every euro paid in, 50 cents are to be added by the state. For a maximum eligible payment in 2023 of 3504 euros, there would be a subsidy of 1752 euros.
So far, however, it is not foreseeable whether and when the citizen’s pension will actually come, although GDV general manager Jörg Asmussen is optimistic that a reform will be completed in this election period. That is the goal.
>> Read here: Every fourth German considers stock investments to be too risky for old-age provision
The so-called focus group on private old-age provision, led by the Federal Ministry of Finance, is still dealing with the citizen’s pension. A lot will now depend on how quickly the political forces in Berlin can come to an agreement. Even before the federal elections in autumn 2021, there were a number of proposals from the various parties to reform the Riester pension, which has been in existence for around two decades. Little had happened since then.
As a result, new business with Riester insurance collapsed by 60 percent in 2022. There are currently hardly any insurers who offer the products. According to the Federal Ministry of Labor there were around 15.9 million current contracts in Germany at the end of the third quarter of 2022. At 10.5 million, insurance policies had the highest share.
“With the GDV pension, the insurers are providing a solution for themselves, but not for the citizens”
Politicians, insurers, fund providers and consumer advocates have long been united in their efforts to reform the Riester pension. On the other hand, there is dissent as to what a suitable implementation could look like in practice.
So there is a contradiction this time too. After the first details about the possible new citizen’s pension were announced, the Federal Association of German Insurance Merchants (BVK) immediately positioned itself and railed against the planned future online contract without advice.
Criticism also comes from Britta Langenberg, pensions expert at the citizens’ movement Finanzwende: “With the GDV pension, the insurers are providing a solution for themselves, but not for the citizens.” The core problem of the customers – the far too high costs – is not really addressed. “Instead, they want to channel even more tax money into their own coffers in the future,” says Langenberg.
An agreement on the future of subsidized old-age provision will not be easy.
Premium income should grow again in 2023 after a difficult year
The industry is in a frenzy. Because there are also increasingly unsolved problems elsewhere. The numbers prove that. Last year, in the difficult environment, premium income in the industry fell by 0.7 percent to 224 billion euros across all lines. This year, the GDV is hoping for an increase of around three percent.
In comparison, life insurance is likely to develop worse. Providers are clearly feeling that the high cost of living is causing many people to put less money into their old-age provision – despite a rise in interest rates. According to the analysis company Morgen & Morgen, the current interest rate had recently risen again to 2.1 percent on average after 1.9 percent in the previous year.
In 2022, life insurers recorded a six percent drop in premiums. The industry association expects stagnation for the year that has just started. Property insurance is also under significant pressure, although the damage in 2022 was not as high as in 2021, caused by the flood disaster in the Ahr Valley.
However, expenses could only be reduced moderately last year because the rise in inflation led to significantly higher claims costs.
After all, revenues increased by four percent and are expected to increase by another six percent this year, driven by premium increases in motor and homeowners insurance. In private health insurance, the premium increase in 2023 is expected to be 3.5 percent.
More: Insurers want to reform private pension schemes