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IPE special report May 2018

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BVI renews efforts for German 401(k)

GERMANY – Following the swearing-in of a new government today, German fund industry association BVI is redoubling efforts to get MPs to introduce its proposal for a simplified retirement account.

Unveiled in late 2003, BVI’s proposal is modelled after the 401(k) plan and individual retirement accounts (IRAs). These are US retirement savings plans which are tax-deferred and portable.

But the BVI failed to persuade the former centre-left government to adopt its proposal. The main reason was the 2002 launch of government-subsidised second- and third-pillar pensions named after ex-Labour Minister Walter Riester.

After a slow start, demand for Riester pensions has picked up dramatically this year, partly because the government simplified the third-pillar version of Riester.

Nonetheless, BVI managing director Stefan Seip argued that the Riester pensions had still not ensured that all Germans owned a corporate or a private pension.

“In the private sector, only half of German employees own a corporate pension. Only 10% of those eligible for the Riester private pension have taken it up. I don’t think those statistics reflect that Germans have the kind of retirement provision they need,” said Seip, who spoke at a press briefing.

Amid these facts, Seip said the BVI would undertake a new effort to get lawmakers to adopt its retirement account.
According to him, a key advantage of the proposal is that small- and midsize enterprises (SMEs) – many of whom do not offer corporate pensions – can set up the account at virtually no cost.

“We don’t want to target the plan to DaimlerChrysler or Siemens. They offer their employees plenty of retirement provision. No, the plan is ideal for SMEs, and this will be one of our principal arguments toward lawmakers,” Seip told IPE on the sidelines of the briefing.

BVI’s retirement account has, however, come under fierce attack from senior members of Germany’s occupational pension industry. Writing in German pensions magazine dpn, Klaus Stiefermann, managing director of the German occupational pensions association, compared the account to “a wolf in sheep’s clothing”.

“The account offers no life-long pension, no protection for survivors or one’s own disability and not even a guarantee on paid-in savings,” Stiefermann said, adding that, hence, it was not a viable alternative for German companies looking to attract and retain high-quality staff.

“Add all this up and it means the end of occupational pensions in Germany,” Stiefermann wrote.

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