Germany’s government is battling a series of obstacles in its pension reforms, with the country’s largest union IG Metall recently rejecting social partner agreements for occupational pensions, a delayed draft law for a first-pillar buffer fund, and a lack of consensus on third-pillar investment options.
The cabinet is preparing a new law to further strengthen occupational pensions, to supersede the one that entered into force in 2018, a move supported by the occupation pension association Aba.
The reform follows a dialogue process with stakeholders in the occupational pension industry, the Federal Ministry for Labour and Social Affairs (BMAS) and the Federal Ministry of Finance (BMF).
The goal of the new law is to “spread occupational pensions even more widely, and particularly to attract employers”, said Parliarmentary State Secretary Florian Toncar, a junior minister in the Finance Ministry, at an event organised by the ESMT business school in Berlin this week.
Social partner models with defined contribution (DC) plans and limited employer liability are good instruments than can lead to a higher take-up of those plans, he said.
The cabinet is also considering widening investment opportunities for second pillar schemes, with tax incentives in occupational pensions in particular for low earners, he added.
However, Germany’s biggest union IG Metall has rejected the social-partner model, demanding employer guarantees for occupational pensions.
“We have to evaluate what [IG Metall’s decision] means for the social-partner model,” Toncar said, hinting to the possibly of making it easier in the future to agree on such models.
First and third pillar
The government’s proposed law to turn the pay-as-you-go system into a partially capital-funded system known as Generationenkapital, originally planned for the end of the summer, has instead been delayed.
The government is still discussing “concrete steps” on the amount of funds to allocate, Toncar said, stressing that €10bn is only an initial move and adding that diversification, also geographical, is important to achieve returns.
Nuclear waste management fund KENFO, designated manager for the planned first-pillar fund, is intended to build a diversified portfolio to stabilise state pension contribution rates from the mid 2030s.
The Genrationenkapital model concerns the government’s contributions to the pay-as-you-go system of €100bn or more per year, said Anja Mikus, KENFO’s CEO, during the event in Berlin, adding that a “small part” of this should be invested on a funded basis.
This is an important first step in the direction of a capital-funded system with a potentially larger sum to invest in the future, she said.
Asked whether KENFO would invest part of the assets in Germany, as one of the legislative requirements, Mikus stressed the importance of diversification. This question is understood to be a reason why discussions are still ongoing within government, delaying the proposal of the draft law.
“I hope that discussions cool down and no fixed quota [for investments] will be prescribed,” she noted.
In the third pillar, the government plans to draft a law to be adopted in 2024 following proposals of Fokusgruppe Altersvorsorge, a group of stakeholders.
The core of the reform is to change the state-subsidised third-pillar ‘Riester’ plans with savings accounts investing, for example, in ETFs, Toncar said, adding that the offerings would not include guarantees for savers.
Toncar added that the stakeholder group had not defined a list of investments.
“We are very happy with the results of the [stakeholder] group. The last two legislative periods were the worst in the history with regard to the subject [of pension reforms],” said Hans Joachim Reinke, CEO of Union Investment, at the event this week.
Reinke’s priorities for the third pillar are inclusion of the self-employed and civil servants; optional rather than mandatory life-long pensions in the payout phase; and the simplification of the system of subsidies.
This article was edited for clarity following initial publication