The German government’s draft law for a reform of the second-pillar pension system, published last week, has garnered much praise but also drawn criticism.
On Friday, the social ministry BMAS published the official final draft of the Betriebsrentenstärkungsgesetz on its website.
In a first reaction to the reform proposals, the German pension association aba welcomed the “direction” of the draft, which outlines how industry-wide pension plans, without guarantees, are to be introduced.
As reported by IPE last week, aba chairman Heribert Karch supports the idea of “more flexible guarantees” and defined ambition plans to increase return potential.
The association, however, sees “urgent need for amendments” in the government’s proposal on tax incentives.
For years, the aba and other stakeholders have lobbied to increase the tax-free threshold for employer contributions to second-pillar plans.
Under the government’s proposal, the percentage of tax-free contributions would be increased from 4% to 7% of the annual payroll (i.e. the part used to calculate contributions to the first pillar).
The government, however, wants to apply the 7% to all contributions, not just those over €1,800, as the current legal provision states.
According to Marco Arteaga, a partner at law firm DLA Piper, this is practically no improvement at all.
“When the fixed rate of €1,800 is scrapped, we are back at the beginning because 4% plus €1,800 is the same as allowing 6.5% tax-free contributions,” he told IPE previously.
For aba’s Karch, the 7% proposal “falls far behind requirements”.
Another problem with this part of the reform was pointed out by legal publishing group Wolters Kluwer on its website: The increase to 7% applies to tax exemptions but not to exemptions from social contributions.
Companies will therefore have to continue to use different pension vehicles for different types of pension promises, the publisher notes.
Added complexity was also highlighted by Reiner Schwinger, managing director at Willis Towers Watson Germany.
In a statement, he pointed out that companies that already have well-established pension plans will have to set up new ones adhering to industry-wide standards should they wish to switch to defined ambition.
“In total, social partners’ influence in occupational pensions – an area that, to date, has been widely dealt with at the company level – will increase,” he said.
Overall, however, aba – as well as the consultancies Willis Towers Watson and Mercer – said they saw a lot of positive approaches in the reform draft.
They all welcomed lower guarantees, the possibility of opting-out models and subsidies for low-income workers in particular.
Mercer Germany disputed the risk of “a race to the bottom” regarding pension guarantees, primarily because not all companies will change their existing pension plans.
Mercer’s occupational pension expert Uwe Buchem said he was sceptical the social partners would make full use of the new law.
“It would almost be tantamount to a revolution should the unions agree to make use of all the new possibilities,” he said.
Stakeholders in the German pension industry have until 24 November to comment on the government draft.
The aba has called its members to a special meeting on that same date to analyse and discuss the reform proposal.
Possible amendments will be discussed by the government in early December.