Riester Retirement Plan: Long-term Investment Funds a Viable Option

This year sees the implementation of the so-called Riester pension reform ("Riester-Rente": grant-aided privately funded pension scheme in Germany). Employees who sign a contract for a private or workplace pension before the end of this year will still receive the first government grants for 2002.

As part of the Financial Market Survey, the Mannheim Centre for European Economic Research (ZEW) has asked 265 financial analysts which type of investment they would recommend for private retirement saving, within the framework of Riester Retirement. Possible types of investment types include pension or life insurance schemes, investment fund saving schemes and bank saving schemes. The answers were categorised according to the investment horizon (ten and 20 years).

For investments with a ten-year maturity period, around 40 per cent of experts consider bank saving schemes to be the best option. With 37 per cent, investment fund saving schemes are the second most popular option. Only 23 per cent of experts, however, favoured insurance schemes. Where maturity was doubled, the survey results changed significantly. Scoring 64 per cent, investment funds clearly lead the ranking of possible investment types, followed by life insurance schemes, scoring 30 per cent. Only six per cent of the surveyed analysts opted for bank saving schemes as the best option. The answers clearly illustrate how risk associated with the respective investment types varies in proportion to the maturity period. Another explanation for the high score of investment funds might be the low value of stocks.

In addition, ZEW questioned the financial analysts in regard to the optimum stock share for an investment fund saving scheme. The investment horizon was once again taken into consideration. For a ten-year maturity, the financial market experts on average choose a stock share of 39 per cent, while recommending a share of 57 per cent for 20-year maturities.  Even where the investment horizon was doubled to 20 years, 35 per cent of experts considered a stock share between 60 and 68 per cent to be ideal. Nevertheless, some of the answers are poles apart. This is indicates the uncertainty in estimating the stock market. Nevertheless, the high stock share for maturity periods of 20 years makes it clear that employees should not let current negative situations on the stock market influence their decision too greatly.

Contact

Dr. Michael Schröder, Phone: +49(0)621/1235-140, E-mail: schroeder@zew.de