We're excited about the new retirement savings account

Starting January 1, 2027, the Riester pension will be replaced by the retirement savings account (AVD), which is significantly more flexible than its predecessor. The industry was surprised to learn that a state-managed version of the standard account is also planned. We hope the management of this "state fund" won't be handed to the Bundesbank.

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On March 27, 2026, the Bundestag passed a reform of state-subsidized private retirement savings. Starting January 1, 2027, the Riester pension will be replaced by the retirement savings account (AVD), which is significantly more flexible than its predecessor. For the first time, this allows the fund industry to offer a subsidized third-pillar retirement product where it can fully play to its strengths — long-term high performance. This wasn't possible with existing Riester contracts, where the required contribution guarantee and mandatory annuitization stood in the way of strong returns.

Simple subsidy model

The AVD subsidy is straightforward: for contributions up to €360 per year, the state adds 50 cents per euro saved. For additional contributions up to €1,800, it adds 25 cents per euro (basic allowance). The basic allowance can therefore reach up to €540 per year.

Parents receive additional support: one parent gets an extra €1 in child allowance for every euro contributed up to €300 — so up to €300 per child (from a monthly contribution of €25).

Young people are also considered: anyone who opens a retirement savings account before their 25th birthday receives a one-time bonus of €200, a career starter bonus.

Tax benefits

The tax office also checks during the assessment whether any additional tax advantage beyond the allowance entitlement applies. Contributions can be claimed for tax purposes — up to a maximum of €6,840 per year.

During the accumulation phase, capital gains and income within the retirement savings contracts are not taxed. No taxable investment income arises during this phase.

Only during the payout phase are benefits taxed at the individual tax rate (§ 22 No. 5 EStG). By then, the individual tax rate is in most cases lower than during working life.

Broad eligibility

All individuals who are subject to unlimited tax liability in Germany are eligible, including:

• Employees
• Self-employed individuals (this is new!)
• Spouses of eligible persons
• Low-income earners

Previously, self-employed individuals had to use workarounds involving mini-jobs to be eligible for Riester benefits.

Largely positive industry response

The German fund association BVI welcomes the AVD and supports:

• The elimination of contribution guarantees
• The elimination of the lifelong annuitization requirement during the payout phase.

This gives savers more flexibility and better return prospects than the Riester pension, according to BVI. However, BVI considers the state-managed offering (more below) to be a "wrong path."

Simple standard model

Citizens can choose from a range of funds, including ETFs. There will also be a simple standard version of the retirement savings account, offering only two fund options and available exclusively online. A cost cap of one percent applies to this version. Initially, lawmakers had targeted a 1.5 percent cost limit, but reduced it following strong protests, particularly from consumer advocates. The German Banking Industry Committee (DK) warns against too tight a cost cap, arguing it could make comprehensive advisory services economically unviable — potentially excluding the very people who rely on advice.

Industry criticism of the state offering

The industry was surprised when a standard account managed by the state was included in the final agreement. The new law requires private companies offering a retirement savings account to also mandatorily include the state version alongside their own standard account. The state version must meet the same criteria as privately offered standard products.

As expected, the "state fund" — available as an alternative to citizens — faced strong protests from both the fund and insurance industries. "A state fund in private retirement provision creates a dangerous blurring of roles: the state acts simultaneously as regulator, supervisor, and market participant. The state should be the referee, not a player," wrote DWS in a press release. GDV stated: "The reform doesn't need a state fund to have broad impact. What matters are simple, understandable products and a framework that enables genuine competition."

The "state fund" as a benchmark

A state-run provider for private retirement savings is initially surprising, but it could create an interesting competitive dynamic. Even if private industry is generally expected to deliver better performance than a government body, the state account can serve as a benchmark. Private providers that show lower performance over longer periods would need to explain why.

So far, the state has not always stood out as a particularly good asset manager. A prime example of this is the long-term care reserve fund (Pflegevorsorgefonds), managed by the Deutsche Bundesbank. This fund is meant to stabilize contribution rates for statutory long-term care insurance from 2035 onwards, when the baby boomer generation reaches the age of needing intensive care. The fund's performance appears to be a closely guarded secret — despite the fact that it holds policyholders' money (other insurers are required to report in considerable detail). The only figure that can be found: between 2015 and 2022, the fund recorded a loss of around €500 million as of December 31, 2022, equivalent to an annual "return" of minus 0.22%. Given how poor that is, it's no surprise that the Pflegevorsorgefonds rarely makes headlines.

KENFO (the fund for financing nuclear waste disposal), by contrast, shows that the state can manage money well. Its €24 billion in assets is managed by an internal KENFO investment team that operates at a high professional level. Since its founding in 2017, the fund has performed very well and has comfortably exceeded its target return of around 4% in almost every year — 2022 being the exception.

Hopefully not the Bundesbank!

It has not yet been decided which government body will manage the state-run default portfolio for the new private pension account (Altersvorsorgedepot). The hope is that it won't be the same institution managing the Pflegevorsorgefonds — in other words, not the Bundesbank. The Bundesbank has clear expertise in interest rate and monetary policy, but apparently not in asset management.

Foto: Canva

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