Auto-enrolment, final salary funds future of German occupational pensions
GERMANY - The German second pillar will have to become more attractive for people but also address the problem those weary of saving for themselves, experts at the annual conference of the German industry pension association IPV found.
Richard Herrmann, board member at Heubeck, told the delegates in Berlin yesterday, that the occupational pension system of the future will have to be designed to attract and hold the right people.
"The trend will (at least partly) revert towards final-salary schemes," noted the actuary.
He also predicts an "upgrading" of pension plans for non-managerial employees to the level of pension plans for managers.
"Employees are valuing occupational pensions more and more," Herrmann pointed out.
Addressing the government he demanded allowing part-payments from the second-pillar prior to the actual retirement to make the phasing out of the employment more flexible.
Heribert Karch, chairman at the pension association aba, said he "can only warn against a purely mandatory system" but once again spoke out in favour of an opting-out scheme.
"It has become clear that the homo economicus is really only an idea rather than actual fact and that some people might need more of an incentive to save for their retirement but by applying too much pressure you can ruin everything," Karch explained.
He called on politicians to simplify the second pillar to get rid of complicated tax arrangements forcing companies to have up to five different pension schemes within one company.
Annette Niederfranke, undersecretary in the German labour ministry, provided figures on the unequal coverage of the occupational pension system in Germany.
While 19.6 million Germans have some kind of accrued assets in an occupational pension plan, 1.8 million neither have saved in the second pillar nor signed a contract for a third pillar Riester pension plan.
"And most of those have a very low income," Niederfranke pointed out.
Additionally, only 30% of people in SMEs are covered by an occupational pension plan, while around 90% in companies with over 1,000 employees are.
Niederfranke used the figures to support the governments plans for a top-up pension which would make every employee who saved in the second pillar but whose pension benefit fell below a certain threshold eligible for a top-up to €850 per month.
The model which is also supported by aba is currently at the centre of a heated discussion in German political circles and the media.
Critics argue that the money will have to come from the already burdened first pillar Pay as you go system, others fear that people might use the scheme for social fraud.