Analyzing Public Knowledge about the Riester Subsidy

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The prevalence of the Riester pension plan, a privately funded retirement scheme subsidized by the German government, has gained enormous momentum. Thus, in 2003, some 8% of households had taken out a Riester contract. By 2009, the quota had risen to nearly 40%. The Riester plan is particularly widespread among households with children; over 56% of two-child households have concluded a Riester contract; households with three and more children exhibit a prevalence rate of almost 70%. Yet a source of worry continues to be the plan's minor popularity among low-income households. Even here, however, the prevalence rate swelled by almost 7 percentage points from 2008 to 2009, to now 25%. Apart from the regular measurement of the Riester plan's popularity with the help of our SAVE data (see Project 4.4.), an additional analysis focused on public knowledge about the Riester subsidy program. The SAVE questions addressing this specific aspect were thus evaluated accordingly. The one query was whether respondents knew they were eligible for the Riester subsidy; the other was whether Riester contract holders were able to size up the subsidy amount. The evaluation of responses on eligibility revealed that approximately 49% of those questioned considered themselves eligible and 51% ineligible. In actual fact, however, 73% qualified for the subsidy, whereas a mere 27% had never done so. It follows that people frequently tend to be wrong in their estimation of entitlement. That became all the more evident upon considering those who had objectively been eligible at least once in the preceding six years. Of these households, nearly 38% claimed never to have been eligible for the subsidy. A closer look at the self-assessment data revealed that 92% of those who thought themselves eligible did in fact qualify. By contrast, only 46% of those who reported never to have been entitled were correct in their appraisal. An astonishing 54% were wrong. That is, they believed themselves ineligible, but actually did qualify, or had qualified at one time. Hence, eligibility is grossly underestimated. This false estimation is indeed encountered in all income groups, but is especially pronounced in the lowest income bracket – that is, the one in which the Riester plan is the least widespread. At 41%, the error rate in the bottom income quintile is the highest. Far fewer households belonging to the other salary groups, namely about 23%, are likely to be wrong about their eligibility. These findings hold true in the multivariate analysis, thus indicating that the reason for the Riester plan's lesser popularity among low-income earners is attributable to their lack of information about eligibility for the subsidy. Surprising results were obtained upon evaluating responses to the question about the subsidy amount. Thus, 57% of the households in possession of a Riester contract were unable to appraise the size of their subsidy. Some 18% replied that the subsidy was small and came to less than 25% of the amount saved. This group was in any case wrong in their estimation. Only 24% of the households correctly assessed the subsidized portion, stating that the quota was "high" (50% and more) or "medium" (between 25% and 50%). This lack of knowledge was equally pronounced across all income brackets and educational levels. Merely households with children displayed a significantly higher degree of knowledgeability about the scope of Riester subsidization. The problematic aspect of such ignorance is that it negatively impacts the scheme's acceptance, often entailing careless decisions to deactivate or terminate Riester contracts. Frequent misjudgments of the subsidy amount could be an indication that the pertinent provisions are too complicated. The above analyses clearly show that more information about the Riester subsidy, as well as simplification of the provisions governing eligibility, would further heighten the scheme's dissemination and acceptance. Such rather simple measures ought to be considered before increasing subsidization or targeting other reforms. This study was published as MEA Discussion Paper No. 244-11; a slightly abridged version appeared in the journal Wirtschaftsdienst, Issue 11, 2011.

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