Capital inflows resulting from Germany’s proposed pension reforms could strengthen domestic capital markets while expanding the role of banks and asset managers, according to pension investors and analysts.
The pension commission’s proposals, submitted to the government in June, could accelerate the trend towards greater capital market participation, Christof Quiring, head of workplace investing at Fidelity International, told IPE.
The proposal to create a funded component within the pay-as-you-go system, similar to Sweden’s premium pension model, “provides an important input and can motivate people to leverage the benefits of capital market-based retirement solutions across all three pillars” of the pension system, Quiring added.
Johannes Bender, analyst at S&P Global, said: “A capital market-backed first pillar component could unlock the general sentiment around pensions and further inflows towards the capital markets.”
Retirement provision forms part of a broader package of reforms that, according to DWS, is likely to support German equities, particularly domestically focused sectors such as construction, real estate, retail, banking and business services.
Increasing equity ownership through fundamental changes to first and third pillar pensions could become a “supply-side reform, given the strong empirical evidence that deep capital markets support long-term economic growth,” DWS chief investment officer Vincenzo Vedda and global head of economics Martin Moryson wrote in an analysis.
Banks seen as early beneficiaries
Financial institutions offering asset management products and investment services are expected to benefit most from capital inflows into the proposed private retirement savings accounts, according to an analysis published by S&P Global.
“The first winners of a reformed third pillar are banks because of the structure of the new products that is more dependent on capital-market opportunities and profitability,” said Silke Sacha, associate director at S&P Global Ratings.
“There are some secondary effects on the insurance business because insurers gain from a larger pension market and stronger awareness of retirement savings,” she added.
Insurers still hold around two-thirds of the almost 15 million legacy Riester-Rente private pension contracts, which would be replaced by private retirement savings accounts (Altersvorsorgedepot) investing in equities, mutual funds, exchange-traded funds (ETFs) and European Long-Term Investment Funds (ELTIFs).
“We don’t expect the insurance industry to hold that market share in the future because of the competition [from banks, asset managers, and neobrokers], and the need to restructure products,” Bender said.
Savings and cooperative banks with older and underserved customer bases could also benefit significantly from growing demand for the new private pension products, according to Benjamin Heinrich, lead analyst at S&P Global Ratings.
“Neo-brokers and asset managers with an active good ETF franchise could benefit more easily than those still relying on big active fund business,” he added.
Consultancy INDEFI estimates that assets held in German private retirement savings accounts could reach as much as €150bn by 2030, broadly in line with developments in other European markets, such as France’s Plan d’Épargne Retraite Individuel (PERin).
According to INDEFI, asset managers “have a unique opportunity” to deepen their relationships with individual investors.
Allianz Global Investors told IPE it will work with distribution partners to develop tailored private pension solutions because it does not have its own proprietary distribution channel.
“The pension savings accounts are held by our distribution partners, while we are responsible for managing the funds invested,” the asset manager said.
Fidelity’s private pension offering will include a premium product based on a core-satellite approach using active ETFs and funds, alongside a standard product consisting of active ETFs.
The asset manager is “in close dialogue with banks and insurers regarding how they can best leverage our investment solutions” and expertise in lifecycle investing, Fidelity’s Quiring said.
Fidelity also expects defined contribution (DC) plans to expand, alongside the possibility of allowing employer contributions into private retirement savings accounts.
“Should the Swedish [premium pension] model actually be implemented in the first pillar, we will also engage in that area with our solutions,” Quiring noted.
