Short answer
For legacy contracts through 2026, Riester is a private pension contract that the state pays into. You receive a yearly allowance for yourself and for each child, provided you contribute enough of your own money, and the provider must guarantee that everything paid in is available at retirement. The payout is taxed in full as income.Riester, as a mechanism Germany
How does a Riester pension actually work?
This page explains how the arrangement works. It does not weigh it up for you: whether any particular contract is worth holding depends on its costs and your tax position, and neither is here.| Allowance | Per year | Condition |
|---|---|---|
| Basic allowance | 175 euro | Contributing four percent of last year's gross |
| Per child, born 2008 or later | 300 euro | For as long as child benefit is paid |
| Per child, born before 2008 | 185 euro | For as long as child benefit is paid |
| Everything together, capped at | 2,100 euro | Your contributions and the allowances combined |
Allowance amounts as they stand in 2026. The four percent is of gross income in the previous year, less the allowances themselves.
Legacy contracts in 2026 and the 2027 successor
The allowances, contribution rule and guarantee below describe the legacy Riester system in force through 2026. The Bundesrat approved the private-pension reform on 8 May 2026, with new successor products due from January 2027. Existing contracts remain protected; holders can keep them or consider switching under the enacted transition rules.
That legal transition is not a recommendation to switch. Guarantees, costs, surrender effects, remaining allowances and tax consequences have to be compared contract by contract.
The allowances, and what unlocks them
The state pays a basic allowance of 175 euro a year into the contract, plus 300 euro for each child born in 2008 or later and 185 euro for each child born before that, for as long as child benefit is paid.
The allowances are only paid in full if you contribute four percent of the previous year's gross income yourself, with the allowances counting towards that four percent. Contribute less and the allowances are cut in the same proportion. The whole arrangement is capped: 2,100 euro a year including the allowances.
The guarantee is the defining feature
At the start of the payout the provider must have at least everything paid in available - your contributions and every allowance. Nothing may have been lost.
That promise has to be funded, and it is funded by holding assets whose value cannot fall much. It is the reason Riester contracts typically hold little in equities, and it is the mechanism behind most of what people find disappointing about their returns. The guarantee is not a flaw in the product; it is what the product is.
How it is taxed, going in and coming out
Contributions can be claimed as Sonderausgaben up to the same 2,100 euro. The tax office automatically compares that deduction with the allowances you received and applies whichever leaves you better off, so the two are not added together.
The payout is taxed in full as income. That is the trade the whole first and second layer of German retirement saving makes: relief now, tax later.
What you can and cannot do with it
At the start of the payout you may take up to 30 percent as a lump sum. The rest must be paid as an income for life.
If you stop qualifying - most commonly by moving permanently outside the EU and EEA - the allowances and any tax relief have to be repaid. The contract can also be used towards an owner-occupied home under separate rules.
What this page does not tell you
Contract costs vary enormously between providers and are the single largest determinant of what a Riester contract returns. Nothing here knows your contract, your marginal tax rate now or in retirement, or how many years of allowances you have ahead of you.