Retirement: Retirement with shares: The twelve most important answers to retirement savings accounts

The retirement savings account will replace the Riester pension from 2027. This causes enthusiasm among many experts. But the new subsidized pension is not great in all respects.

Munich. “Game changer, giant step, great success”: a federal government reform rarely enjoys such attributions. But the retirement savings account, which will replace the state-funded Riester pension from January, is associated with great expectations and has achieved something that rarely happens: consumer advocates, representatives of the financial industry and politicians are equally convinced of the new, subsidized private pension.

But what exactly will happen to the approximately 50 million employees, civil servants, freelancers and self-employed people who can open retirement savings accounts? How will we be able to save for old age in the future? What will become of the Riester pension? Where can interested parties find the best offers for them? These are just a few of the questions that the new subsidized pension raises. To find answers, Handelsblatt spoke to experts from the financial sector, pension experts and consumer advocates.

The financial industry is currently advertising the retirement savings account with sometimes huge effort - after all, they expect great things from the product. Oliver Bilal from the fund house Invesco is certain: “The retirement savings account has the potential to introduce significantly more people to the capital markets.” André Haagmann, CEO of the fund company Union Investment, says: “Currently only one in five people in Germany owns shares, that will change.”

And the target group can also be happy, says Ulrich Hoyer: “As a consumer, I currently feel like I’m in the best of all worlds with a retirement savings account,” says the expert for private customer business at the ZEB banking consultancy. Hoyer observes an “unprecedented price war” among financial service providers. “The providers are loudly positioning themselves,” he says. After all, billions are at stake.

Now, for sales reasons, representatives of the financial industry are interested in praising the new pension component in the highest tones. After all, they can expect a real rush for their offers thanks to the new, government-funded products. But economist Martin Werding also says: “We have taken a huge step in the right direction.”

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In the medium to long term, according to calculations by the rating agency Scope, between 30 and 50 billion euros could flow into retirement savings accounts annually. According to the Scope experts, a further 44 billion euros could be added through reallocations from the approximately 220 billion euro capital stock of existing Riester contracts.

The fear of missing out

But how is this received by the people who can open a retirement savings account from January 1st? “Quite a few financial service providers are stirring up a real ‘precautionary fomo’,” says financial psychologist Valentin Haas, alluding to the sometimes aggressive advertising. For many people, the fear of missing something, also known as “fear of missing out” or Fomo for short, is combined with the fear of making the wrong decision.

Psychologist Valentin Haas advises calmness when it comes to retirement savings, even if the advertising suggests that you have to do something now. Photo: PR

According to the psychologist, such fears are not only the result of too little information, but also of too much information. “If we constantly receive impulses, we react in a stressed manner,” he says. According to Haas, this can also lead to us pushing the topic of retirement provision aside and not even starting. His advice seems banal at first glance: stay calm, sort the information and make a decision without pressure.

To ensure this is successful, the Handelsblatt has compiled answers to the most pressing questions about retirement savings accounts.

1. What are the key points of the retirement savings account?

The retirement savings account is scheduled to replace the Riester pension on January 1, 2027. With the new private pension, not only employees, but also self-employed people and civil servants can make provisions for old age on their own, but with state funding.

The deposits: Banks, brokers and insurers that offer a retirement savings account must maintain a standard deposit. A cost cap of one percent applies to this depot. The standard portfolios can have a fixed interest rate, i.e. with a high proportion of bonds, or more volatile, with a high proportion of stocks.

In addition to standard portfolios, financial service providers can offer retirement portfolios without a cost cap. There is hardly any restriction on which products the respective providers work with, as long as they adhere to certain risk classes. The limit is risk class 5, into which equity funds and equity ETFs are grouped. Warrants and leverage products are not allowed in the retirement portfolio, but long-term investments such as Eltifs are, with which investors can invest outside of the regulated markets in private equity and infrastructure, for example.

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What savers need to know about retirement savings accounts

The funding: Anyone who pays into a retirement savings account receives an additional 50 cents from the state for every euro saved up to an annual personal contribution of 360 euros. Savings amounts of 361 to 1,800 euros are subsidized with 25 cents per euro deposited. This comes to a total of 540 euros per person. This means: Anyone who saves 1,800 euros per year will invest 2,340 euros with the funding.

Children are supported with up to 300 euros per year, provided that one parent pays at least 25 euros per month, i.e. at least 300 euros per year, into a retirement savings account. This means that a family of four can receive up to 1,680 euros from the state, provided each parent saves 1,800 euros as part of the retirement savings account. This means that in addition to the 3,600 euros of personal contribution, almost half of the funding is added. People under 25 also receive a one-off 200 euro starter bonus. As with the Riester pension, the same applies to retirement savings accounts: Anyone who quits before retirement in order to use the money saved for something else must repay the funding.

In retirement: Savers have the opportunity to have up to a third of their saved capital paid out directly at the start of retirement. The rest or all of the assets in the portfolio can also flow into a payout plan that is designed to last 20 to 30 years. In addition, as with the Riester pension, it should be possible to allow the capital to flow into a pension insurance policy.

2. How does the retirement savings account differ from the Riester pension?

“Above all, the retirement savings account is easier to understand than the Riester pension,” says Carmen Bandt from the Stuttgart asset management company Kidron. While the Riester funding depended heavily on income and there was also direct and tax funding, the federal subsidy for retirement savings accounts is based on the contribution paid. There is also a tax subsidy, but this only becomes interesting for people with a high marginal tax rate.

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While all contributions paid into the Riester pension were guaranteed, products that were certified for the retirement savings account no longer have to offer any guarantees. “But there are still guaranteed products,” as financial planner Bandt emphasizes. Nevertheless, she advises against guarantees. “Anyone who invests over decades can bear the risk of fluctuating stock prices; in fact, the person should,” says Bandt. This is the only way money can actually increase, even after costs and inflation.

Union Investment boss Haagmann also sees it this way: “In the past, a savings plan in a broad stock portfolio has shown a positive overall return after twelve years at the latest, even after long periods of weakness on the stock markets.” But Haagmann also knows that many investors value guarantees. The cooperative bank fund house therefore also offers a retirement savings account that guarantees all contributions and subsidies paid.

3. Is the retirement portfolio necessarily a stock portfolio?

Even if the name sounds like it, there will also be products within the retirement portfolio that contain no or only very few stocks. According to Carmen Bandt, many providers will also offer products in which the money is invested in fixed-interest securities.

“I wouldn’t recommend this for long-term wealth creation, but it makes little sense to force people into stocks who can’t cope with the interim price fluctuations,” says the Stuttgart asset manager. According to reports, some insurance companies are also planning to offer pension insurance as part of their retirement savings accounts.

4. What is the standard depository?

The standard portfolio was designed to offer a cost-effective and easy-to-understand solution to all people who are managing a securities portfolio for the first time. To ensure that the portfolio remains easy to understand, financial service providers can offer a more offensive version, i.e. more stocks-heavy, and a more defensive version, which contains more bonds.

The two variants are intended to be set up as a kind of “all-round, worry-free package”. This means two things: Firstly, the portfolio is automatically rebalanced. If, for example, a stock-heavy portfolio starts with 90 percent stocks and ten percent bonds and a year later, because the markets have done very well, the ratio is 95 percent stocks to five percent bonds, the original weighting is automatically restored.

Secondly, standard depots must contain a lifecycle model. With this help, the proportion of shares decreases the older the owner of the portfolio gets, and especially in the last years before retirement. This is intended to guarantee that there is enough money available in the first few years of retirement, for example to have a part paid out directly, to start a withdrawal plan that lasts as long as possible, or to start a pension insurance policy with the highest possible regular payments.

A change of provider or product is possible at any time. If you start with the standard portfolio and later want to invest on your own, you can switch. According to the information available so far, this change will be free of charge, provided it is made with the same financial service provider.

5. Who should choose the standard portfolio?

The standard portfolio, comparable to the Swedish savings plan AP7, was created for people who cannot or do not want to deal with investments and want to delegate this “work” at the lowest possible price. In the words of Carmen Bandt, this is “the solution” for everyone who takes the funding with them and doesn’t want to worry about it any further.

Anyone who wants to make their own decisions should choose a “normal” retirement savings account. Most providers call such a depot “active depot” or “self-decider depot”. “Savers are free to make their investment decisions here. However, they should pay close attention to the fees because, unlike standard depots, these are not capped,” says Bandt.

In addition: “Anyone who invests on their own runs the risk of making expensive mistakes,” warns the asset manager. Her tip, which also applies to investing money outside of the retirement savings account: “First, think about, perhaps with someone from an expert, what your portfolio should look like, what risk you can tolerate, and implement this strategy consistently.”

6. Is it important to open a retirement savings account on January 1st?

The retirement provision depot will start on January 1, 2027, but the funding will still be available if a depot is opened in December 2027, says Bandt. She advises everyone who is now dealing with the portfolio not to be put under pressure and to monitor the market. “There is currently a race for the cheapest depot, but these depots do not automatically have to be the best,” says the expert. For them, the focus is on a large selection of good products: “There is no way around ETFs, with which you can inexpensively add thousands of shares to your portfolio at once.”

Peter Schwark from the German Institute for Retirement Provision makes another point for everyone who is now having problems being level-headed. “There is no guarantee that a free or very cheap retirement savings account will remain so cheap.” Providers could adjust their prices within a few months. He therefore advises waiting and then choosing a portfolio whose fees remain low in the long term.

7. Which products are already available?

Not a week goes by this fall without another financial service provider presenting its retirement portfolio offering. And the motto seems to apply: the cheaper, the better. Neobrokers such as Trade Republic, Scalable Capital, N26 and Quirion want to offer their retirement savings accounts for free, at least temporarily. It is not uncommon for bonuses to be offered if customers already decide on a provider. Other providers such as the direct bank ING, Deutsche Bank and Deka, the savings banks' fund company, have announced fees that start at 0.2 percent and remain well below the cost cap of one percent required here for standard deposit accounts.

The already known variants of the retirement portfolio are often stock ETFs that invest broadly on the market, or active ETFs specifically launched for the Riester successor. These are index funds that invest according to certain rules or with the help of fund management (other than the underlying index) in order to achieve more returns and avoid strong fluctuations. Some providers such as ING use the retirement portfolio as a shell in which the holders can choose from a variety of ETFs and funds according to their own taste.

The standard portfolio is dominated by active ETFs that combine stocks and bonds. In these products, the proportion of shares decreases over time and especially as the owner approaches retirement, in favor of bonds. Invesco man Bilal expects significantly more of these offers and also those that generate income streams.

Banking consultant Hoyer points out that the cheap retirement savings accounts are used as a door opener, especially by providers who have not been on the market for long, in order to sell more lucrative products for financial service providers.

But there are also providers who view the market critically: “The current price war leads to false incentives,”