What are the tax benefits of a Riester pension in Germany?

The Riester pension is a state-subsidised private pension scheme available to employees, civil servants, and some other groups subject to mandatory pension insurance. It offers two types of support: direct government allowances (Zulagen) and a tax deduction.

For 2024, the basic allowance is €175 per year per qualifying person. Additional child allowances are €300 per child born after 2008 (€185 for children born before). These allowances are credited to your Riester contract automatically when you contribute the minimum required contribution (4% of your gross income from the previous year, minus the allowances, with a floor of €60 and a cap of €2,100).

You can also deduct your Riester contributions as Sonderausgaben (special expenses) up to €2,100 per year on your tax return. The Finanzamt performs a Günstigerprüfung (benefit check) automatically and applies whichever gives you the greater tax advantage: the allowances alone or the deduction. For higher earners, the deduction is typically more valuable than the allowances. Riester pensions are taxed in retirement, but most retirees are in a lower tax bracket than during their working years, so the overall tax outcome is usually positive.