DWS expects competition in Germany’s pension market to intensify following the introduction of low-cost, fee-capped private retirement products under the third pillar reform.
Björn Deyer, head of retirement provision at DWS, told IPE that competition will come from mutual fund companies, neo-brokers not yet active in pensions, as well as direct and branch banks and insurers.
“There will be many new players in the market. We will see competition in the interests of customers and citizens. We expect maximum competition,” he said.
DWS described the private pension law as “overall very positive”, highlighting the introduction of equity investment options without capital guarantees, more flexible pay-outs, and a simplification of subsidy systems.
“With the reform of the third pillar private pension we are nearly reaching a level playing field between fund and insurance industry in Germany,” Deyer said, noting that insurers have historically benefited from regulatory and tax advantages.
He added that the reform brings Germany closer to other European markets with more modern pension frameworks, although some complexity remains.
However, the asset management industry, which has long advocated for private pension reform, has criticised the inclusion of a publicly organised standard product.
“The publicly organised standard product is, from our point of view, a mistake. A nascent market is thus already being accused of failure, serving as a justification for the creation of a sovereign wealth fund,” Deyer said.
“The publicly organised standard product is, from our point of view, a mistake”
Björn Deyer, head of retirement provision at DWS
Asset managers view the state as a challenging competitor in the third pillar, given that savers may default to public options.
“Moreover, the switch to individual savings accounts necessitates, in many cases of consultancy, something that the state is not able to do. Consequently, citizens will refrain from making their own investment decisions, and the average financial literacy of the German population won’t improve significantly,” he added.
One positive aspect of the public product is the 1% fee cap, which, alongside increased competition, is expected to drive down costs for savers.
Evergreen Swedish model
The German government is revisiting the concept of an equity-based pension (Aktienrente), drawing on Sweden’s premium pension model previously championed by former finance minister Christian Lindner.
Last month, shortly before parliament approved the third pillar reform, state secretary in the finance ministry Jeanette Schwamberger travelled to Sweden with a delegation including Deutsche Bank, Deutsche Börse, aba, BVI, GDV, and the German Trade Union Confederation (DGB).
The visit followed a Swedish delegation’s trip to Germany last year and focused on the Savings and Investment Union (SIU) and Sweden’s pension framework.
Discussions with representatives from AP7 and the Swedish Pensions Agency underlined Sweden’s position as a “particularly deep and liquid capital market”, according to a finance ministry spokesperson.
Deyer, who joined the delegation, said senior representatives from AP7 and the Swedish Pensions Agency emphasised that while the state can play a role in first pillar pensions, it should not intervene in private pensions.
The spokesperson added that the government-appointed pension commission (Alterssicherungskommission) is currently working on broader reform proposals.
DWS expects the commission to recommend changes to both public and occupational pensions, including removing guarantees and further opening defined contribution plans under the social partner model to small and medium-sized enterprises.
“This is also right to do,” Deyer said.
Beate Petry, chair of aba, said Sweden’s experience demonstrates that “more capital funding for retirement provisions is sensible, and possible”.
