The recently passed German pension reforms, which will replace the Riester pension with the Altersvorsorgedepot (AVD) framework, represent a “paradigm shift” for pension investments, Invesco has stated.

Germany’s Bundestag passed the Altersvorsorgereformgesetz on 27 March 2026, which was finalised by the Bundesrat on 8 May 2026, with the AVD framework to be effective from 1 January 2027.

Invesco highlighted that state-subsidised pension savings in Germany will be able to be invested in exchange-traded funds (ETF), equities, and actively managed funds without a mandatory 100 per cent capital guarantee for the first time.

No new Riester products will be permitted from 2027, with approximately 16 million existing Riester contracts.

The firm argued the shift to AVD-compliance solutions represented a “substantial market opportunity”, but providers faced a tight implementation timeframe.

With providers developing new capital market-focused solutions, Invesco highlighted the importance of considering the optimal asset mix for accumulation and the glidepath into retirement, especially for those looking to enter managed drawdown rather than purchasing an annuity.

It noted the initial focus following the reform will likely be on growth assets to enable greater participation in equity market dynamics and improve return potential.

However, Invesco warned that focusing solely on growth risked overlooking the wider challenge of supporting individuals into and through retirement.

“Delivering effective pension outcomes will require not only well-designed investment solutions, but also strong engagement — arguably as critical as the underlying portfolio construction itself,” the firm said.

“The three available product structures — full capital guarantee, 80 per cent guarantee, and no guarantee — each necessitate distinct investment building blocks.

“Higher levels of guarantee will naturally constrain growth exposure and require greater use of capital preservation and hedging strategies, while solutions with no guarantee offer significantly more flexibility to allocate to growth and higher returning income-generating assets.”

Invesco argued that defining these building blocks within a clear and robust framework was essential, and the framework should link guarantee design, return objectives, and risk tolerance to an appropriate mix of growth, income, and defensive assets.

“This will not only support consistent and scalable solution design, but also ensure that portfolios remain aligned with savers needs across different stages of the retirement journey,” the firm added.

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