Federal Court Invalidates Pension Clause in Riester Contracts, Benefiting Hundreds of Thousands

The Federal Court of Justice (BGH) has declared a clause in Riester pension contracts invalid, potentially raising pension expectations for a significant number of policyholders. This landmark ruling concerns a clause designed in 2006 that allowed insurance companies, such as Allianz Lebensversicherung, to reduce the pension factor during periods of low interest rates without correspondingly increasing it when market conditions improved. The court found this one-sided adjustment provision unfairly disadvantaged policyholders, as it only permitted downward adjustments in pension payouts.

Riester pensions, a private retirement savings plan with state support, include approximately 15 million contracts in Germany. The invalidated clause was especially impactful for fund-linked Riester contracts, with affected policyholders seeing reductions of up to 20 percent in their pension factor over recent years. For example, a pension due in 2041 saw its pension factor fall from €38.74 per €10,000 of policy value in 2017 to €30.84 in 2021.

The court acknowledged that adjustments to long-term contracts in response to changing market situations are generally permissible, but the exclusive allowance for decreases without any guaranteed increases was unacceptable. This decision has wider implications as similar clauses in other insurance companies' contracts are also under scrutiny for potential invalidity, affecting a broad base of savers.

The ruling comes amid broader discussions about the solvency and reliability of Germany's pension systems. Entrepreneur Frank Thelen has voiced concerns about relying on Germany for savings and investments, highlighting political risks associated with proposals to tax capital income to finance pensions. He recommends that entrepreneurs adopt international structures for their businesses due to the uncertain political climate surrounding pension funding.

Policyholders impacted by the ruling are advised to proactively engage with their insurers regarding potential pension increases or contract adjustments. The decision marks a critical development for Riester savers, signaling a possible reversal of prior reductions in pension expectations caused by the contested clause and placing pressure on insurers to reconsider their contract terms.