Riester contracts have been around for more than 20 years now. The longer they exist, the more come into the payment phase – which means that more and more people can finally enjoy the result of their Riester savings. However, there are several payout alternatives. That’s why it’s worth taking a close look at the contract now
In 2002, the then Federal Minister of Social Affairs, Walter Riester, introduced the Riester pension, which was named after him. Since then, everyone has been able to provide for their old age privately and receive subsidies from the state. Deposits and grants are guaranteed when paid out, any possible interest gains until then increase the pension. Workers who took out this form of pension more than 20 years ago are now moving more and more from the pay-in to the pay-out phase. Most of the time, they haven’t looked at their Riester contracts in the past 20 years, after all, the payments were made automatically. But before you retire, you should take another look at your contract, because there are several variants with their own advantages and disadvantages for the payment.
The Riester pension is actually intended as a lifelong pension. You should increase your monthly pension payments. This is the most common form of payment and probably the best for you. There are also other models for special cases.
For example, you can have 30 percent of your saved Riester capital paid out as a one-off payment when you retire. The remaining 70 percent then goes into your life annuity payout, which reduces the amount. This partial payment is worthwhile for you if you still have enough income with the reduced Riester pension.
Theoretically, a complete payment of the Riester deposits is possible in one fell swoop. Then, of course, the lifelong pension is no longer available. However, the state sees a total payment as a “harmful use” of the Riester pension. You would therefore have to pay back all state subsidies and also pay tax on the payment. Since it is presumably a large sum, the tax rate is set correspondingly high. An exception is a so-called small contribution pension. If you would receive less than 30 euros per month from your Riester pension, you can have the full deposits paid out tax-free and without deductions.
You can also have your Riester pension paid out before you start your pension. In this case, however, you must also return all grants and tax the rest as normal income. A special case is the “Wohn-Riester”. If you want to build or buy a property or have it converted to make it barrier-free before you retire, you can use your entire Riester savings, including state subsidies. The prerequisite is that you live in the property yourself and are the owner. Offices and parts of the property that you rent out are exempt from the residential Riester. If you have already bought an apartment and are currently repaying your debts, you can also use money from Riester contracts for special repayments.
When considering which payout option is best for you, you should always keep an eye on the costs. With the Riester pension, a paradigm shift in German social policy began, which will only be completed this year. Since then, the contributions to the old-age provision have been tax-free, but the payments are taxed. Before 2002 it was the other way around. This means that both the monthly Riester payments and any partial or total payment are counted towards your income and must be taxed accordingly. Especially if you are thinking about one-off payments, you should check your contract to see whether and how you can postpone them to a year in which you have as little other income as possible.
Extra costs are added to everyone who has completed a Riester bank savings plan. Depending on the model, the bank pays all or part of your savings to a pension insurance company, which then takes over the payments. The insurance company, in turn, charges transaction and distribution fees. This is often not included in the Riester contract as a cost item, which is why the Baden-Württemberg consumer advice center has sued such contracts several times in recent years – but was only partially right. The costs can be high. In some cases, Riester savers were deprived of up to five percent of their savings at the beginning of their retirement.
Important: All of the payment options mentioned above are theoretically open to you. In practice, however, there are banks and insurance companies where you may have concluded your Riester contracts that do not offer you certain forms of payment. You should therefore first study your Riester contract and the offers of your contractual partner and find out about the variants and costs offered there. If nothing appeals to you, you are not obliged to start the Riester pension right away when you retire. You can also postpone the payouts and hope for better offers.
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