Subsidized Private Pension Savings and the Deferred Taxation of Retirement Income: Is the German Riester Scheme Self-Financing?

Abstract

In 2001, the German government introduced a private retirement savings plan that provides special subsidies for private savings, the so-called Riester scheme. In order to establish whether the Riester scheme is self-financing, this paper provides simulations of future government expenditures on Riester subsidies and compares them with the simulated additional fiscal revenue from deferred taxation of Riester pension payments. The results show that, on a yearly basis, government expenditures on Riester subsidies can be covered by the additional fiscal revenue obtained from deferred taxation of Riester pension payments until 2050.