Germany’s pension reform steers savers toward ETFs

Germany will introduce the Altersvorsorgedepot (AVD) in 2027, a new state-supported private pension wrapper that permits direct investment in funds and ETFs and places funds on the same footing as insurance products in subsidised retirement saving. The fund industry association BVI called the reform “almost epochal,” and reported that asset managers are preparing products for the 2027 launch.

The current private pension framework has favoured guaranteed insurance products and capital preservation. The AVD allows fund and ETF investments inside a subsidised structure that previously prioritised guarantees.

German households hold roughly EUR10 trillion in wealth, according to DZ Bank estimates. In the fourth quarter of 2025, savers deposited about EUR63 billion into cash and checking accounts. Among the less-wealthy half of households, more than two-thirds of financial assets remain in bank deposits.

Retail participation in markets has increased. In 2025, 14.1 million people in Germany invested in the stock market, about two million more than the previous year. ETF savings plans have grown: nearly half of Germans under 40 now invest regularly through them. BVI reported retail inflows of EUR33.6 billion in the first quarter of 2026, with ETFs accounting for EUR22.3 billion, including EUR18.7 billion into equity ETFs.

Industry surveys indicate widespread ETF use. Research in Finance found 91 percent of respondents use ETFs in some form across retail, wholesale and institutional clients. Deutsche Börse’s head of the ETF and ETP segment expects the new framework to attract more investor segments but cautions that broader adoption will depend on building trust and offering simple, transparent and cost-efficient products.

Yorick Naeff of ABN AMRO described the change as “structurally significant” but predicted behavioural shifts would start slowly. He recommended automation, auto-enrolment, payroll-linked investing and low-cost ETF-based default portfolios to increase participation and promote long-term saving habits among younger investors.

Oliver Behrens, chief executive of flatexDEGIRO, called the reform “a vibe shift” and noted Germany has lacked a simple retail entry point into capital markets for retirement saving. He pointed to long investment horizons, compounding and deferred taxation as factors that could support regular long-term investing.

Christian Schneider-Sickert, chief executive of LIQID, said the larger effect may come from recurring monthly contributions by middle-class savers of about EUR100 to EUR300, rather than from affluent investors. He warned against repeating past pension-system shortcomings and stressed that low costs, transparency and clear product design will affect whether savers change behaviour.

Adoption of the AVD will depend on how regulators, product providers and employers design default options, fees and communication, and on whether younger savers build sustained investing habits under the new framework.