Germany's Altersvorsorgedepot: How it works, benefits and risks

When saving privately for retirement, there is a trade-off between security and potential returns. A capital guarantee can make planning easier, but it also affects how retirement savings can be invested. Investing without that guarantee opens up a wider range of options while exposing savers to greater market risk.

The Altersvorsorgedepot, Germany's new retirement investment account, reshapes this balance within the country's government-supported private pension system. The legislation has already been passed and officially published. From January 2027, providers will be able to offer the new products, giving savers in Germany another way to combine government support with capital market investments without a capital guarantee.

This article addresses five key questions:

• What is the Altersvorsorgedepot, and how does it work?
• How does it differ from existing government-supported private pensions?
• Who might the Altersvorsorgedepot suit?
• What are the potential benefits and risks of investing without a capital guarantee?
• What should investors consider when choosing a plan?

The Altersvorsorgedepot is a new form of government-supported private retirement saving in Germany that does not include a capital guarantee. Savers make their own contributions, which are invested alongside government allowances within a certified retirement savings contract. The accumulated assets are later used to provide additional income in retirement.

The account is not itself a fund or an ETF. Instead, it provides the contractual framework for investing. Investments are restricted to a statutory list of eligible assets, including certain investment funds such as ETFs, as well as other permitted investments.

Alongside the regular Altersvorsorgedepot, there is also a more standardised and more restricted version known as the Standarddepot. It is subject to additional requirements regarding fund selection, asset allocation and costs.

For a regular Altersvorsorgedepot, depending on the contract, savers either make their own investment decisions from the available range or choose an investment strategy managed by the provider.

During the accumulation phase, gains and investment income within the contract are not taxed as they arise. Instead, taxation takes place when benefits are paid out. Payments are subject to German income tax to the extent that they derive from subsidised contributions, government allowances and the returns generated by those amounts. Tax relief while building retirement savings therefore does not mean that future payouts will be tax-free.

The payout phase normally begins between the ages of 65 and 70. Exceptions allow payments to start earlier, for example when a saver begins receiving a German statutory old-age pension before that age. The main retirement income options under the new system are a lifetime annuity or a fixed-term drawdown plan.

Despite its name, an Altersvorsorgedepot is not an ordinary investment account that can be used for any savings goal. Government support is tied to its retirement-saving purpose. This combination of investment and contractual payout rules is one of its defining features.

The most significant change concerns the level of protection. Under the previous rules for Riester pension plans in Germany, savers' contributions, including government allowances, generally had to be available in full at the start of the payout phase. This full contribution guarantee shaped the design of these products.

Alongside the Altersvorsorgedepot, which has no capital guarantee, the new system continues to offer products with guarantees. For these products, the agreed protection at the start of the payout phase covers either 80% or 100% of contributions, including government allowances. The distinction is important: The Altersvorsorgedepot itself has no capital guarantee. Products with guarantees are separate alternatives within the reformed private pension system.

Government support for the Altersvorsorgedepot also follows a different approach. Under the previous Riester rules, the required personal contribution was calculated according to income. In the new support system, the basic allowance is calculated from the contributions actually paid. Savers who are directly eligible for support can receive a basic allowance of up to EUR 540 for an annual personal contribution of EUR 1,800. Additional allowances for children and potential further tax relief supplement this support, subject to the relevant eligibility conditions.

There is also greater choice over how retirement benefits are paid. Alongside a lifetime annuity, savers can choose a drawdown plan that runs until at least their 85th birthday. There is no requirement to convert any remaining capital into a lifetime annuity afterwards. This creates more flexibility, but it also means that a fixed-term plan will not necessarily provide income for the rest of a person's life.

The reform does not automatically convert existing Riester pension plans. They can generally be continued under the rules protecting existing contracts. Retaining the existing support arrangements, switching only to the new support system and transferring savings to a new contract are distinct choices. Switching support arrangements does not automatically turn an existing Riester pension plan into an Altersvorsorgedepot.

An Altersvorsorgedepot may be particularly relevant for savers who have many years until retirement and can withstand market fluctuations. Investing over several decades generally leaves more time to weather temporary market declines than investing when the money will be needed soon. A long investment horizon does not, however, guarantee a positive outcome.

Age is not the only factor. The ability to bear risk is equally important: Can an investor afford to absorb losses, and can they tolerate significant fluctuations in value? Other sources of retirement income, and the extent to which future income depends on the account, also influence the appropriate risk profile.

Government support may also make this option relevant for people making small or moderate personal contributions. Families may receive additional allowances for children. In Germany, direct eligibility for support is also being extended, notably to certain self-employed people and certain people whose membership of a professional pension scheme is compulsory. Eligibility and suitability are not the same, however. Qualifying for allowances does not establish whether an investment without a capital guarantee is right for an individual's circumstances.

Different considerations apply when a fixed minimum benefit is needed, payouts are due to start soon or the money may be needed earlier. In these situations, guarantees and access to the money become more important. Products with capital guarantees and investment alternatives without government support should also be included in the comparison. This does not mean that any one option is better in every case.

The economic advantage of the Altersvorsorgedepot lies in greater investment flexibility. The provider does not need to fund or hedge a guaranteed minimum capital amount. This can allow a larger share of the assets to be allocated to return-seeking investments. Whether that flexibility is used in practice depends on the investment strategy.

Giving up a capital guarantee does not, in itself, produce higher returns. It changes the investment options and how risk is allocated. Results still depend on the investments selected, their performance, costs and risk management. The potential for higher long-term returns must therefore be clearly distinguished from a promise of higher retirement payments.

The trade-off is the risk of loss. An Altersvorsorgedepot provides neither a guaranteed minimum capital amount at the end of the accumulation phase nor a guaranteed minimum return during that phase. As a result, the value of the account may be lower than the contributions paid in, even at retirement. Government allowances do not prevent the underlying investments from losing value.

Sharp market falls shortly before or just as payouts begin are particularly important. When the money will not be needed for many years, there is more time to wait for a possible market recovery. As the point when the money is needed approaches, however, losses can directly affect the benefits available. With a market-linked drawdown plan, fluctuations can also change the amount of future payments.

This makes it more important to align the investment strategy with retirement income needs. What matters is not just how savings are built up, but also the risks the investor is still exposed to when retirement begins. Risk management is not a substitute for a guarantee. Its purpose is to align the investments with the individual's needs.

The starting point is the desired level of security. The question is not only what return potential a product offers, but also how much uncertainty an investor can accept in their future retirement benefits. This informs the fundamental choice between an account without a capital guarantee and a product with one. Government support, the investment horizon and the eventual payout arrangements all need to fit that decision.

Costs deserve close attention. Relevant costs extend beyond the fees charged by an individual fund to include the costs and terms of the retirement savings contract itself. Over a long period, differences in ongoing costs can have a significant impact. A comparison focused only on government allowances or individual fund charges is therefore incomplete.

Under German law, the Standarddepot has a 1% cap on effective costs. Effective costs measure the average annual reduction in investment returns caused by charges. This specific cap applies only to the Standarddepot, not to every Altersvorsorgedepot. It is therefore not a general cost benchmark for all available contracts.

The Standarddepot is a simplified version of the Altersvorsorgedepot, with no capital guarantee. It uses two funds selected by the provider with different risk profiles, together with default arrangements set out in the contract. These generally include a gradual shift towards a lower-risk allocation before payouts begin, although savers can choose a different approach. Standardisation makes decisions easier, but it does not provide a capital guarantee.

When choosing funds and ETFs, it is important to consider which investment strategies the contract actually allows. The range of investments available, the portfolio composition and the planned approach to risk management need to be assessed together. Options for switching funds or providers, as well as the terms and costs of receiving payments in retirement, are equally relevant. Focusing on the accumulation phase alone is not enough.

Access to the money also needs to be considered. Anyone withdrawing subsidised savings outside the circumstances permitted by German law will generally have to repay the government allowances and additional tax relief attributable to those savings. Greater flexibility within the retirement savings system is therefore not the same as unrestricted access to the money at any time.

Finally, certification by Germany's Federal Central Tax Office (Bundeszentralamt für Steuern) is not an endorsement of a product's financial merits. It confirms compliance with the statutory certification criteria. It does not assess the product's financial viability or whether the provider can meet its commitments. An individual assessment of costs, risks and contract terms therefore remains necessary.

The Altersvorsorgedepot combines government support with capital market investment, without guaranteeing a minimum benefit. This is the source of both its additional return potential and its principal risks. What matters is not the absence of guarantees alone, but how the investment horizon, capacity to bear risk, government support, costs and retirement income needs work together.

There is no universal answer to whether this structure is right for an individual's retirement savings. Greater choice allows a more tailored approach, but it does not remove the need to balance the desired level of security against the market risks an investor can bear.

Understanding the Altersvorsorgedepot means looking beyond the basics. It is also important to consider government support, investment options, the implications for existing Riester pension plans and how savings are paid out in retirement.

• How does government support for the Altersvorsorgedepot work?
• Which ETFs and funds can you hold in an Altersvorsorgedepot?
• What does the Altersvorsorgedepot mean for existing Riester pension plans?
• How does an Altersvorsorgedepot pay out in retirement?

This article is provided for information purposes only. The legal and tax information contained herein is not intended to constitute or replace legal advice, nor does it purport to cover all legal or tax considerations that may be relevant to the subject matter of this article. The information is not exhaustive and does not take into account the individual circumstances of any particular investor or group of investors. It cannot replace advice from a tax adviser based on the circumstances of the individual case. Although the information has been compiled with due care, no representation, warranty or guarantee is given as to its accuracy, completeness or currency.