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Vesting debate goes on

Last month's amendment to the German Occupational Pensions Act did nothing to lead to the shortening of the vesting period in pension schemes, Ulrich Jürgens of the Hamburger Pensionsverwaltung in Hamburg, told the conference. Currently, early leavers only obtain a right to a pension if they are at least 35 and in the scheme for 10 years.

There was consensus in principle" on abbreviating the period, he said. "Industry and ABA, the German association for retirement provision, demanded fiscal acknowledgement for this increased liability, which the ministry of finance was not prepared to grant." The discussion of this issue, which he described as more on an international than a domestic one, could go on.

But the amendments to the act would enable an employer in future to transfer pensions obligations to another financing vehicle, even without the employees' approval. There were a number of companies in Germany whose only activity was to pay pensions to its former employees, as some employees objected to the business being closed and the obligation being transferred. Another amendment incorporates into written law court rulings imposing a requirement that pensions in payment are increased in line with inflation every three years. But for new schemes, employers can be free of this by guaranteeing in advance an annual increase of pensions of at least 1%. "The effect is that employers have to make a bet on future inflation now if they want to be on the safe side," said Jürgens.

The question of increasing pensions in payment, which had given rise to an increasing amount of litigation in Germany was referred to by Jochen Rühmann of the Heissmann-Group consultancy. The risk of such price adjustments was one of the main reasons causing firms to decide against pension schemes or to close them to new employees.

Bettina Nürk of Deutsche Bank Research in Frankfurt called for defined contribution plans to be allowed to halt the decline in occupational plans. "German companies need this sort of plan," she said. Small companies would have a chance to compete for better qualified labour by offering pension plans."

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