Backing out of private pension provision: lessons from Germany

Abstract

Financing pensions in the EU is a challenge. Many EU countries introduced private pension schemes to compensate declining public pension levels due to reforms made necessary by demographic change. In 2001, Germany introduced the Riester pension. Ten years after introduction the prevalence rate of this voluntary private pension scheme approximates 37%. However, numerous criticisms raise doubts that the market for Riester products is transparent. Using the 2010 German SAVE survey, this paper investigates for the first time terminated and dormant Riester contracts on a household level. Respectively 14.5% and 12.5% of households who own or have owned a Riester contract terminated it or stopped paying contributions. We find that around 45% of terminated or dormant Riester contracts are caused at least partly by product-related reasons, which is significantly higher than for endowment life insurance contracts. Uptake of a new contract after a termination is more likely if termination is productrelated. Nevertheless, after a termination 73% of households do not sign a new contract, which can have serious long-term consequences for old-age income. Households with low income, low financial wealth or low pension literacy are more likely to have terminated or dormant contracts. Low income and low financial wealth households also have the lowest prevalence rate of Riester contracts and are at higher risk of old-age poverty.

Which financial stressors are linked to food insecurity among older adults in the United Kingdom, Germany, and the Netherlands? An exploratory study

“…In the United Kingdom, personal savings and employer-based pension systems play a significant role for many older adults, while governmental pensions provide a smaller portion of income (about 50%), compared to 60% in the OECD countries overall (Ayres and Cracknell 2015;Alonso-Fernandez et al 2018). In Germany, personal savings play an increasing role, especially for older adults with non-traditional employment histories (Ziegelmeyer and Nick 2013). The Netherlands emphasizes the comprehensive financial security it provides to its residents, including older adults with non-traditional careers (Disney 2016;Heeringa and Bovenberg 2012).…”

How European pension promises changed in austere times: 2002–15

“…The situation is further complicated by complex savings products which potential customers cannot understand (Rowlingson 2002;Clark and Strauss 2008;Hagen and Kleinlein 2011;Ziegelmeyer and Nick 2013). For these reasons researchers are concerned about the impact of economic globalisation on the quality of pension schemes and they anticipate that the trend towards greater personal responsibility will lead to increased poverty risks.…”

Savings in Times of Demographic Change: Lessons From the German Experience

“…Moreover, the authors find that low knowledge of the pension system is associated with a higher probability to misreport the household's eligibility for the Riester subsidies. In a similar context, Ziegelmeyer and Nick () analyze the reasons behind the termination of Riester contracts finding that in about one third of the cases miscounseling or bad products were the only cause for terminating or stopping contributions to Riester contracts. This indicates that individuals were not well‐informed when making their plan choices.…”