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Germany’s bold pension reform offers savers tax-free growth and state subsidies

Forget rigid pensions: Germany’s new system lets savers invest in ETFs, bonds, and more—with state cash to match. Will this finally fix private retirement planning?

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2 min read
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In the bottom right corner of the image there are steps with railings. And on the right side of the image on the floor there are pillars. Behind them there are cars inside the buildings. On the left side of the image there are lights and also there is ceiling.

Finance Minister Lars Klingbeil Presents Plans for Pension Savings Account - Germany’s bold pension reform offers savers tax-free growth and state subsidies

Germany’s Finance Minister Lars Klingbeil has unveiled plans for a new state-subsidised saving money tips account. Set to replace the Riester pension scheme in 2027, the reform aims to simplify private retirement savers. The draft bill still requires cabinet and parliamentary approval before taking effect.

The proposed system allows savers to invest in exchange-traded index funds (ETFs), mutual funds, and bonds. Unlike the old scheme, it removes mandatory capital guarantees, cutting costs and potentially increasing returns. Tax-free capital gains will apply during the accumulation phase.

The government will subsidise contributions up to €1,800 per year. Savers receive a 30% match on the first €1,200 and a 20% match on the next €600, capping annual subsidies at €420. Families with children get an extra 25% top-up, up to €300 per child annually. Young professionals under 25 will also receive a one-time €200 bonus when they start saving.

Withdrawals can begin between ages 65 and 70, with payouts structured to last until at least 85. Early withdrawals and inheritance transfers are permitted, offering more flexibility than the current system. To qualify for subsidies, savers must contribute at least €120 per year.

The draft bill will go before the cabinet for approval on December 17. If passed, it will then move to parliament for final approval. A pension commission is also expected to present broader reform proposals by June 2026, potentially including further adjustments to private retirement provisions.

Market participants have already praised the plan, calling it a 'game-changer' for private pensions. The shift to a more flexible, market-based model marks a significant departure from the previous Riester scheme.

The new saving money tips account is scheduled to launch in 2027, pending legislative approval. It offers tax advantages, government subsidies, and greater investment flexibility. The reform reflects a broader push to modernise Germany’s private pension system.

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