In May this year, the BVI, the German investment funds association, underwent an internal reorganisation to streamline its set up. The result – three new distinct departments – the organisation said, would enable it to become more “issue focused” in its operations, particularly in light of the new German pensions legislation.
The first of these new departments would deal with law and tax questions on both a national and international level.
The second, for policy and communications, the BVI announced, would look at policy objectives and concentrate on media and investor education efforts.
The third – covering markets and services, comprises the old statistics and archives and documentation department of the BVI, and is headed up by Rudolf Siebel.
Siebel explains his responsibilities under the new structure: “We’ll be focusing on helping our members coming up with market research, education papers and programmes. But we will also get more proactive in the area of performance and standards, trying to become more accurate with the kind of data we can provide.”
The approach, he says, will bring better research to BVI members, particularly with regards to pensions.
Concerning the new Riester pensions law, Siebel says the BVI has, over the last year, been able to make all the necessary negotiations and gain approval from the banking supervisory agencies to bring pure fund solutions to the market.
These, he notes, include the arrangements for capital guarantee requirements, although he adds: “We still think that capital guarantees are an unnecessary burden for pension funds in Germany.”
To date, Siebel says around 3,500 funds products now have approval for public sale under the category of tax benefits in the Riester legislation. The majority of these, around 3,000, he says, are bank savings plans.
“To my knowledge though, not many of these have sold to date. They have been implemented with the help of the banking association, but there are key problems in the banks. I think that around 100,000 pure funds products have been sold.
“With life insurance products there are about 120 that are being actively sold through groups such as Hamburg Mannheimer, and Victoria. The totals that I have seen show that there have been around 2.4m individual pension products sold – mainly life insurance and annuities products offered by the life insurance industry, but that 400,000 of these contracts have already been cancelled.”
Siebel calls the take-up in the market so far “very unsatisfactory”, noting that people are dissatisfied with the pensions offer so far.
“It is nowhere near the 32m potential people that these products could be sold to.
“I have read reports from the Mannheimer group saying that they still estimate a good pick up by the end of the year. I think that around four million contracts should be signed by the end of the year, although it is difficult to give a number because I don’t know how many of our members will be getting into big marketing campaigns in the second half of the year. The government maintains that this will be the case though.”
According to Siebel, BVI members will see their biggest benefit coming from inclusion in life insurance and unit-linked annuity products.
“This will be the main bulk of sales. However, we as an association would like our members to push pure funds products, because we truly believe that in the long run equity investments should give a risk premium over bond investment. We may be seeing a bear market at the moment and we won’t get the kind of returns of the mid to late 90s, but the basic paradigm that equities beat bonds should hold out in the pensions arena.”
In a bid to influence how the pensions legislation develops, the BVI has joined forces with various German private and professional pensions associations to have a combined voice when lobbying the government.
“The organisation is called the central credit committee (ZKA) and it is a loose body of the various private and professional pensions associations.
“In order to get a common view of the law we have set up an overall review team. This team has identified several areas where we would like to see an overhaul of the government legislation.”
The first, he says, is in the area of product certification.
“The government should really cut down on the 11 conditions needed at present for certification.”
The second, he points out, is the issue of capital guarantee.
“This guarantee has created the launch of very conservative pension products and means that our members in the pure funds product area are much too heavy in bonds because they don’t want to be carrying the can if something goes wrong.
“If average life expectation keeps increasing as it is at the moment, then there will be problems because not enough pensions money is being invested in equity.
“We need our members to be able to offer the products that they should offer!”
Another area where Siebel says the ZKA will lobby for change is in the area of compulsory annuities: “We would like to make annuitisation at age 85 optional. The regulation says we can offer withdrawal plans, but the formulas are quite complicated as to how you divide between an annuity at age 85 and how much money can be spent between, say, age 60 and 85.
“The law is difficult to understand and reduces the flexibility of the products. We believe that there should be some form of a pension but that it should be more suited to the needs of individuals. It should at least be possible, for example, for someone to pay off their mortgage if that will make their retirement more comfortable, or for ill people to buy themselves medical care. Also, if people know they will not live long, then there should be the flexibility to use the capital in another way.”
Similarly, Siebel believes one area that could certainly be improved is a combination of tax benefits for occupational and private pensions in a single vehicle - something like a private savings product akin to the US 401k system.
“This would offer a range of investment options including life insurance, banking and fund products and in a limited way company shares of the employer and maybe some risk diversification in the portfolio.
“If this sort of plan was offered by an employer you could use the 4% contribution ceiling for occupational plans together with the e1500 benefits that you get under Riester, and combine this with wealth creation savings contracts.
“Our argument is that the government should enable future pensioners to focus all government incentives in the one pension plan.”
Siebel adds that when a little more detail is fleshed out on the proposals he hopes that the ZKA will come up with something that is more acceptable to the life insurance industry, with an annuity type investment option included.
“Unfortunately though, there are a lot of conservative investors in Germany and you can talk to them for years about equities and not get very far.
“If everyone is willing to make concessions though then we may be able to come to a conclusion across the financial services sector and the government can reach some kind of compromise.”
Discussions are currently under way on the proposals, but Siebel says the lobby group is unlikely to produce anything before the end of the year, when it will be presented to the new government.
Tax claim procedures, he argues, is a further area where simplification would help. However, he notes that government moves in this direction have been somewhat convoluted.
“The government came out with a five page document on this and a number of questions, but then there was a lot of quarrelling with the financial services industry and the document was reduced to two to three pages. What we should be able to see is a one-page document with a dozen questions, that is if the government uses all the information in its departments and combines it.
“They have different isolated departments that need to be pulled together in order to get the right kind of data that would allow the industry to make products.
“The average German tax reclaim form is already very complicated. It will become even more complicated, especially if the financial services industry is asked to be the intermediary between the taxman and the investor.
“If things stay as they are then I think that the government could damage the overall attractiveness of the system, because the financial services and insurance industries won’t do as much as they could do to push these products.”