Germany launches state-subsidized AVD pension product in 2027
The new Altersvorsorgedepot replaces the Riester scheme, offering a 30% state subsidy and tax advantages to 47 million eligible investors. Providers warn that fee structures significantly impact long-term returns, with low-cost ETFs emerging as the preferred vehicle.
Germany’s new private pension product, the Altersvorsorgedepot (AVD), launches on January 1, 2027, targeting approximately 47 million eligible individuals including employees, apprentices, and self-employed persons. To receive the maximum state subsidy of 540 euros annually, investors must contribute 1,800 euros per year, with an additional 300 euros per child and a one-time 200 euro bonus for those under 25. Contributions are tax-deductible, with the entire sum taxed at the personal rate upon withdrawal. Investors may contribute up to 6,840 euros per depot, allowing a maximum of 13,680 euros across two depots; amounts exceeding the subsidized 1,800 euros enjoy tax-deferred growth, with only half the earnings taxed at withdrawal if held for at least 12 years. Eligible assets are restricted to risk class 5 or lower, excluding individual stocks, derivatives, crypto, and commodities, leaving primarily broad ETFs. Two depot types exist: a standard depot with provider-selected ETFs and automatic de-risking toward bonds near retirement, and a self-directed depot allowing custom ETF selection from provider-approved lists. The product replaces the less successful Riester scheme, which had 15 million contracts. Existing Riester contracts can be transferred to the AVD, a move that is irreversible. Analysts note that the 30% state subsidy acts as a psychological buffer against market volatility, making long-term equity investment viable even for older investors. The cost structure of AVD providers varies significantly, with a legal cap of 1% for standard depots but no cap for self-directed depots. Discount providers like Smart Broker Plus and Vanguard offer zero fees for depot, savings plans, and transactions, with Vanguard ETF costs reimbursed for at least three years or up to 25,000 euros in volume. Other providers like Trading Public offer 51 free ETFs, while others charge for individual trades. Presenters calculate that a 0.1 percentage point difference in costs over a 40-year investment in the MSCI World index results in approximately 20,000 euros in lost returns due to the compound interest effect. A full 1 percentage point cost difference would result in approximately 176,000 euros in additional costs over the same period. Premium providers may charge higher fees for advisory services or in-person support, which some investors may value for psychological comfort during market downturns. Investors are advised to prioritize low-cost ETF solutions and to be wary of promotional offers like welcome bonuses or raffles, which may be less valuable than long-term fee savings.