"After the premature pension fiasco: hopes pinned on Riester 2.0"

Many are asking themselves: Will the early retirement pension backfire? Can “Riester 2.0” finally make private pension provision simpler, cheaper, and more flexible? Ali Masarwah, fund analyst and managing director of envestor, shows how Germany could learn from models in Sweden, Switzerland, and the US—and what that means for savers.
 

17 November 2025. FRANKFURT (envestor). Last week, the grand coalition's plans to cut early retirement pensions were making the rounds in the media even before they saw the light of day. The long-awaited proposals for Riester pension reform are now set to be presented to the federal cabinet in mid-December. Ali Masarwah, fund analyst and managing director of the consulting firm envestor, has formulated a wish list for the reform of private pension provision.

One could laugh at the absurdity if the matter were not so sad: even before it sees the light of day, the early retirement pension is already being cut back. The grand coalition is making cuts to the planned promotion of capital market-covered pensions for younger generations. According to the 2026 budget law, the early retirement pension will no longer cover all six to 18-year-olds, but initially only the youngest age cohort. Only six-year-olds will receive the ten euro monthly subsidy for private pension provision. Seven to 18-year-olds will initially receive nothing. A new age cohort is to be added each year, little by little. According to research by Tagesschau, 50 million euros have been earmarked in next year's budget for the early retirement pension. That is pretty pathetic when you consider that up to five billion euros have been earmarked for the CSU's favorite project, the mothers' pension, in the next fiscal year.

The most important part of the reform of subsidized private pension provision is to be presented to the Federal Cabinet on December 17. A funded “Riester 2.0” was part of the black-red coalition agreement and is intended to significantly simplify the existing Riester pension, make it cheaper and more flexible, and also dispense with expensive guarantees. But nothing specific is known. I have looked at the subsidized pension plans in Sweden, France, the US, and Switzerland and compiled the best of all worlds. Perhaps the grand coalition will be inspired—especially in view of the more than bumpy history of Riester, it would be better to steal well than to do it badly.

Generous government subsidies

Learning from the Swiss means learning how to win: The Swiss 3rd pillar model focuses on tax incentives: Contributions of up to CHF 7,258 per year for employees and CHF 36,288 for the self-employed can be deducted directly from taxable income, creating a high tax incentive. During the savings phase, there are no wealth or capital gains taxes, and when the capital is paid out, it is taxed at a reduced, separate tax rate. The 401(k) plans in the US are also tax-free up to $22,500. The PEA system in France is significantly less ambitious, but capital gains and dividends are tax-free if the account is held for at least five years.

Simple, digital management

I am a big fan of the Swiss pillar 3a: contributions are transferred directly via online banking. Anyone can make payments, regardless of whether they are self-employed or employed. The tax relief is unbureaucratic: the amount paid in is directly deductible as a special expense each year – the bank reports this digitally to the tax authorities. Product changes, inheritance, and payouts are also clearly regulated. Although there are no government subsidies in Switzerland, there is a clear, predictable tax advantage that is implemented without red tape. With the French PEA plan, everything is also handled through the brokerage account – capital inflows are recorded and tax advantages are credited without a separate application.

Guarantee-free, low-cost standard product

The “Germany Depot” should be an opt-out product based on a broadly diversified equity fund or equity ETF. The product should not include any expensive guarantees and should have management costs well below 0.5%. The Swedish AP7 equity fund costs 0.1% and should also serve as a model for us. This does not preclude investors from having freedom of choice and also resorting to other certified funds, provided their costs are within a narrow range. Sweden also offers corresponding options, as do France, the US, and Switzerland. With the exception of Sweden (AP7), there are no cost requirements in the other countries. However, in the case of US 401(k) plans, employers and pension plan providers have fiduciary duties and ensure that costs are “in line with market conditions.” Since German and European supervisory authorities impose requirements on funds with regard to the structure of performance fees, the issue of cost limitation would not be new territory.

Flexible deposit and withdrawal phase

Deposits should be made at any time – even irregularly or flexibly, as with the French PEA or 401(k) – without any limits on annual contributions or minimum savings periods. One-off investments (as in France) are also possible. In the payout phase, there are three equally valid options: a lump sum payment, a withdrawal plan, or a lifetime pension, as in the Swedish model, whereby there should be no obligation to convert to a pension payment.

Protection from government access – and from investors

Savings plans remain protected in critical situations (unemployment, insolvency), as in Sweden and the US. Capital remains protected in critical situations (unemployment, insolvency), as in Sweden and the US. Savings protection against government access must also be provided, as is the case in Switzerland, Sweden, and the US. However, pension capital must also be protected against access by investors. Early withdrawal should not be possible in principle, except in the event of serious illness, unemployment, owner-occupied residential property, or death (capital should be inheritable under Riester 2.0).