Should anybody saving with the
Riester-Rente (the German contributory pension scheme) intend to have a house built, or to buy a new property, he may soon be able to invest state pension subsidies and savings to finance this. Indeed this may turn out to be a decisive factor on the choice of Riester provider for many Germans.
Under current rules the “property scheme” variant of the
Riester-Rente allows house buyers to take a lump sum between 10,000 and 50,000 Euros out of the pension fund without having to pay tax. This sum would have to be paid back in full on a flat rate basis before the first pension payment is made. Apart from the high minimum amount there is an obvious difficulty for savers in paying this back and continuing to make pension contributions.
Moves to address this are still in der Schwebe as the Germans like to say (up in the air) but coalition parties have already drafted proposals that outline some key reforms. The actual legislation should be approved by the middle of this year and will be applied retrospectively to 1 January 2008. The new law touches on the following points:
• At least 75% of capital stored up in the pension fund may be used to invest in property in which the riester-saver will reside.
• Funds so invested must not be paid back. Needless to say this a key point!
• Pension funds will also be permitted to pay off existing housing debt burdening the riester-saver. Again upto 75% of accumulated capital can be used for this purpose provided the riester-saver has occupied the property consistently for 20 years.
• Interest on the sum taken from the fund does need to be paid although the home owner can choose whether to pay this off in one go or over a maximum period of 25 years.
It is anticipated that these rules will only apply to properties within Germany, although the European Commission has already voiced concern that this proposal could contravene European law.
