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Certified Tax Advisor, Director, National Office Tax & Legal/Quality Assurance
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
The Federal Ministry of Finance published a draft bill dated December 1, 2025 on the reform of tax-incentivized private pension provision (Pension Reform Act; “Altersvorsorgereformgesetz”). This is a revised version of the draft bill originally presented on September 30, 2024. In particular, it takes up the proposals for pension reform made in its final report dated July 18, 2023 by the focus group of politicians, financial experts and consumer advocates appointed by the previous government.
As the declining number of pension contracts since 2018 shows, the previous structure of the state-subsidized so-called “Riester-pension” has lost its appeal, primarily due to the high contract costs and complexity. As an alternative, the new statutory regulations provide for the promotion of private old-age provision within the framework of - differently - return-oriented old-age provision products. Various financial products such as funds, ETFs and individual shares will play a role as much more individual investment options; opportunities and potential returns on the capital market are to be exploited.
In future, there are to be two types of state-subsidized investment schemes: with a certified retirement savings account without guarantees for the capital paid in, the BMF's objective is to create a higher-yield retirement option, albeit one associated with higher risk. This retirement savings account will also be offered as a standard product with effective costs limited to a maximum of 1.5%, for which decisions by retirement savers are only necessary if they wish to deviate from the standard settings. For security-oriented investors, guaranteed products with a choice of 80% or 100% guaranteed capital at the start of the payout phase will be offered. Overall, the focus of the more standardized products is on old-age provision. Protection against reduced earning capacity or incapacity to work will no longer be subsidized in the future. Survivor's benefits are to be limited to an optional pension guarantee period. However, homeowner pension subsidies are to be retained.
The attractiveness of private pension provision is also to be increased by making the products more flexible. During the savings phase, changing providers will be made easier by improving the comparability of pension contracts. In addition, the acquisition costs of pension contracts will be spread over the term of the contract, and after five years it will be possible to change providers without incurring any transfer costs on the part of the previous provider. The legislative changes also provide for less complexity in the withdrawal of capital for owner-occupied residential property (home pension subsidies); however, this option no longer must be provided by all providers of pension products. For the payout phase, pension savers will in future be able to opt for payout plans until at least the age of 85, in addition to life annuities. Due to demographic developments, the age limit for the start of payouts will be raised to 65.
The previous system of tax incentives based on a favourable tax treatment remains in place: tax exemption of contributions in the savings phase is ensured by the allowances received or the deduction of special expenses as part of the income tax assessment. Deferred taxation takes place during the payout phase.
In future, a uniform minimum own contribution of EUR 120 per year is to apply for direct and indirect beneficiaries. The basic allowance, which is proportional to contributions, amounts to EUR 0.30 for every euro of personal savings up to an annual amount of EUR 1,200 and EUR 0.20 for every euro of personal savings for annual personal contributions of EUR 1,201 up to a maximum subsidized amount of EUR 1,800. This means that a state allowance of up to EUR 480 is possible. With a contribution-based child allowance of EUR 0.25 per child and each euro of personal contribution, up to EUR 1,200 in pension contributions per child are additionally subsidized. The maximum possible child allowance therefore remains at EUR 300. Only spouses who are indirectly entitled to allowances under Section 79 (2) of the German Income Tax Act (EStG) are entitled to a basic allowance of up to EUR 175, which is calculated based on the subsidized pension contributions of the spouse who is directly included in the group of beneficiaries. Young professionals who have not yet reached the age of 25 will also receive a one-time bonus of EUR 200, as before.
Within the framework of the special expenditure deduction pursuant to Section 10a EStG, the maximum amount should only apply to the taxpayer's own contributions; the bonus allowance can be claimed in addition. The maximum possible deduction of special expenses for a taxpayer thus amounts to EUR 2,280 plus any child allowances. The increase in the basic allowance for young professionals will continue to be disregarded when determining the allowance entitlement as part of the most favourable tax treatment test for the special expenditure deductions pursuant to Section 10a (1) sentence 5 EStG.
The main parts of the reform are to apply from January 1, 2027. New contracts can then be concluded and savings made. Product information on retirement provision contracts is to be made available to third parties free of charge for comparison purposes.
Existing so-called “Riester-contracts” continue to be protected; they can be carried on with the previous subsidies. Those entitled to the previous “Riester-pension” can waive the application of the old law and switch to a new product. This waiver cannot be revoked. The protection of existing rights also ends when a new pension plan is taken out.
The changes to the new taxation of home savings accounts following the use of retirement assets for housing purposes or to include cross-border commuters in tax incentives require a change in IT procedures and additions to tax forms. Therefore, the corresponding regulations are not scheduled to come into force until January 1, 2028.
Notice:
The proposed changes promise a less bureaucratic and more flexible way of making private pension provision that is geared towards greater personal responsibility. The volume of support in the form of state allowances appears to be higher; another positive aspect is the option to switch to the new form of support for existing private pension plans. However, the draft bill still requires the obligation to contribute to the statutory pension insurance scheme to qualify for state subsidies.