Breaking Germany’s mould
In exemplary fashion, federal civil servants at two government ministries are searching for a workable policy to promote occupational pensions following a failed initiative in 2015 for sector pension funds with a defined contribution (DC) structure.
At the beginning of this government’s term in 2013, many in the German occupational pensions sector were pleasantly surprised that the coalition agreement included an aspiration to promote workplace pension provision. Now they are concerned this opportunity may be lost as elections loom and if the debate on pensions veers unexpectedly off course.
Right at the end of 2015, three ministers from the state of Hesse wrote an opinion piece in the establishment Frankfurter Allgemeine Zeitung calling for a state-backed supplementary DC pension scheme, which they referred to as ‘Deutschland-Rente’.
While it would bring a welcome degree of simplicity to Germany’s complex supplementary pensions world, there are many reasons not to like this idea. First, it subverts Germany’s well-developed occupational pensions system. Second, it would distort competition in occupational pensions since providers of most vehicles are required to meet specific guarantees.
Perhaps more significantly, the novelty and boldness of the Deutschland-Rente idea could hijack the nuanced discussion on occupational pensions of the past few years.
German politicians meddle with the pension system at their peril and any debate is likely to include a reference to the ill-fated claim of the then labour minister, Norbert Blüm, in the 1990s that “pensions are safe”. Blüm’s panglossian statement (since reiterated by Angela Merkel) ignored the growing evidence that the state pension system was far from secure.
Germany needs to channel more savings into private pensions. Far from making pensions more secure, this government has actually increased state pension entitlements, and Germany is on course to spend 12.5% of GDP on public pensions by 2050.
The three politicians from Hesse broke the mould of the discussion on German pensions. While the future of the country’s pension provision should be occupational in nature, the direction of travel should be firmly towards DC in some form that is palatable to the public, employers and providers. There are strong parallels with the Netherlands, where the industry is also in search of a workable collective
DC system. When it does finally find the right policy path, at least Germany can be thankful that it does not have the Dutch FTK and the associated convoluted pensions funding debate to contend with.