The most important facts about the "Bürgerrente"
Insurers are contributing a new concept to the discussion on reforming private pension provision. Their proposal is called the “Bürgerrente” (Citizens' Pension), and is intended to give a new boost to state-subsidised funded pension provision.
With their concept of a Citizens' Pension, German life insurers want to revitalise subsidised private pension provision. The Bürgerrente is simple in structure and cost-effective, it combines security with opportunities for returns, and is combined with an easy-to-understand subsidy that promises significantly higher returns over the long term.
"Compared to the Riester Pension, the Citizens' Pension is simpler, easier to understand, more sustainable and offers higher returns", said Dr. Norbert Rollinger, GDV President.
Important: The Citizens' Pension is not a finished product proposal. Rather, it is a concept of how state-subsidised old-age provision should be structured. The framework for this will be determined by politicians. Here we explain the most important innovations.
Better earnings opportunities
The Citizens' Pension is to yield higher returns than are possible today with Riester. To achieve this, insurers believe it is necessary to soften the currently prescribed 100 percent capital preservation at the start of the pension - without, however, completely foregoing protection. Insurers envisage a capital guarantee of 80 percent of the premiums paid in. This level would be a good compromise to better exploit the opportunities of the capital market while avoiding major losses.
More flexibility in the pension phase
The annuitisation of saved assets remains the core element of subsidised private pension provision. After all, the money serves to secure the standard of living in old age, regardless of how long you live. With the Citizens' Pension, however, insurers want to make the payout a little more flexible for people in order to convince all those who don't think they will live to a very old age to take an annuity. Therefore, in addition to the partial payout of 30 percent of the assets at the beginning of the pension, which is already possible today, there is to be a pension guarantee period of ten years, for example. Providers would pay out at least one annuity for just as long: If the insured person dies earlier, the remaining guaranteed capital would go to the surviving dependents.
The Citizens' Pension is intended to make subsidies simpler and easier to understand. The goal: less bureaucracy and an end to the annoying, subsequent reclaiming of allowances because the eligibility conditions are not or are only partially met. The idea: The state adds 50 cents to every euro paid in. For example, if a customer pays EUR 1,000 per year into the contract, she receives an additional EUR 500 as a subsidy. So simple.
In this way, the allowance would increase in proportion to the personal contribution - up to an allowance limit that could be four percent of the contribution assessment ceiling for the statutory pension insurance scheme (2023: EUR 87,600). Currently, the maximum eligible personal contribution would thus be EUR 3,504 per year, to which the allowances would be added. In this way, middle-income groups would also benefit more from allowances than just from tax savings. The government subsidy would be perceived much more strongly by people this way, and moreover, a larger part of it would directly benefit the contract. Contributions to the Citizens' Pension would remain tax-free, but the benefits would be fully taxed in the payout phase by way of deferred taxation.
The current subsidy system for private old-age provision does not include any regular adjustment of allowances, while the personal contribution increases every year due to rising wages. The consequence: Savers have to spend more and more money to get the same subsidy from the state. The Bürgerrente therefore links the subsidy to income and inflation trends. Because the contribution assessment ceiling for the statutory pension scheme increases every year, the subsidy and personal contribution could also grow automatically, promoting higher benefits at retirement age.
A product for all people, without exception. In the view of insurers, the Citizens' Pension should also expand the group of eligible persons to include self-employed persons, who are not subject to compulsory pension insurance. This reduces complexity and also leaves those people in the support system who are sometimes employed, sometimes self-employed.
Lower cost products
A standard product, less documentation burden, streamlined processes between providers and government funding agencies, and also digital distribution capabilities: All of this reduces costs. With the Citizens' Pension, private old-age provision could be made much more affordable - without sacrificing the service of personal advice. Intermediaries ensure a greater understanding of the product and consequently its high degree of dissemination.