BDO Analyzes German Pension Provision Reform

Business advisory firm BDO AG has analyzed a draft bill published by the German Federal Ministry of Finance (BMF) on December 1, 2025. Titled the "Pension Reform Act" (Altersvorsorgereformgesetz), the legislation revises the existing framework for tax-subsidized private pension provision. This updated draft incorporates proposals from a focus group of politicians, financial experts, and consumer advocates.

The reform addresses the declining appeal of the previous "Riester" pension contracts since 2018, which BDO attributes to high contract costs and complexity. The new regulations aim to promote private old-age provision through new types of investment products with a greater focus on returns. The aim is to leverage capital market opportunities, with a broader range of investment vehicles including funds, ETFs, and individual stocks.

Two main types of state-subsidized investment schemes are planned. One is a certified retirement savings account without capital guarantees, intended to offer higher potential returns with increased risk. This product will have cost caps, a maximum of 1.5%. For security-conscious investors, products offering 80% or 100% capital guarantees at the start of the payout phase will be available. While focusing on old-age provision, the reform will reduce subsidies for occupational disability and incapacity to work. Survivor benefits are to be limited to an optional guarantee period. However, subsidies for pension provision linked to homeownership will be retained.

The reform also seeks to enhance flexibility. During the savings phase, switching providers will be simplified by improving contract comparability. Acquisition costs will be spread over the contract term, and after five years, providers can be changed without transfer costs. Capital withdrawal for owner-occupied property will also be less complex, although not all providers will offer this option. For the payout phase, savers can opt for payout plans extending to at least age 85, in addition to life annuities. The minimum age for commencing payouts will be raised to 65 due to demographic changes.

The existing tax incentive system remains largely unchanged, with contributions tax-exempt during the savings phase and taxation deferred until the payout phase. A uniform minimum own contribution of EUR 120 per year is to be introduced. The state allowance mechanism is adjusted, with a potential maximum allowance of up to EUR 480 annually. Additional child allowances can contribute up to EUR 300 per child, subsidizing up to EUR 1,200 in pension contributions per child. Spouses indirectly entitled to benefits may receive a basic allowance of up to EUR 175.