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A Franco-German challenge

As we report in this year’s IPE Top 1000 Pension Funds supplement, considerable efforts have been made in EU countries to transpose the 2016 IORP II directive into national law. In many cases these efforts have extended beyond the January 2019 deadline and into this year. 

Yet this should not obscure policymakers from the overall need to boost occupational pension funding and coverage now and in the future. 

In some countries, a period of relatively benign (or at least not outright dreadful) economic data could shift the focus away from bolder policies to extend the scope of funded occupational pensions as other priorities take sway.

France and Germany are the two countries that stand out the most for their comprehensive state pension systems and for underdeveloped second-pillar frameworks. Both have also recognised the need to incentivise pension funding more and enacted bold policies that break away from the consensus. 

In France, this has involved enactment of the PACTE package of reforms to boost competitiveness, which contains incentives for supplementary workplace pension saving. France has also enacted legislation to create IORP-compliant vehicles for the first time, in the form of so-called FRPS structures.

a franco german challenge

Germany’s BRSG legislation came into force at the beginning of 2018 and contains provisions to create pension funds at social partner level, including the option (for the first time) for pure DC schemes.

Despite policymakers’ willingness to embrace bolder policies, there is little evidence that these will make a difference in either country. Both need to channel savings away from low-yielding vehicles like savings accounts and life insurance policies and into longer-horizon vehicles. Bolder tax incentives might do the job, yet other domestic priorities are likely to take precedence. 

In Germany, social partners have shown little appetite to embrace funded pensions as a labour relations tool; traditionally minded trade unions have focused their attention on pay and other benefits. There is no evidence that a pure DC option will gain traction and debate has focused instead on improving the state system with a so-called Grundrente or basic pension.

In France, workplace pension saving is still a side issue. The bigger challenge this autumn will be to enact President Macron’s state pension reform agenda, where there is also a lack of clarity about the future of the reserves accumulated under the current system.

The wise policies of PACTE and BRSG could prove to be insufficiently bold. France and Germany might look back on the latter years of this decade as a missed opportunity to tackle the underlying issues and get to grips with occupational pensions as a way to improve public finances and future competitiveness.

Liam Kennedy, Editor
+liam.kennedy@ipe.com

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