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Coast clear for first German pure DC plans from 2018

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The German Pensionskasse for the financial industry, the €26.6bn BVV, will offer pension plans without guarantees for its members from 2018, it said.

The announcement came shortly after the smaller chamber of the German parliament, the Bundesrat, passed the country’s pension reform law - “Betriebsrentenstärkungsgesetz” (BRSG) - on Friday. This was the final step in the legislative process.

Its passage means that Germany might see its first pure defined contribution plans in the second pillar in 2018, when the law comes into effect. The law makes it possible to set up occupational pension plans without guarantees as part of collective bargaining agreements. 

The BVV noted it “is prepared” for the new legal framework and confirmed in a press release it will be offering pension plans without guarantees from next year when the law comes into effect.

“With the new law the legislator makes organisations like the BVV, which are run collectively by employer- and employee representatives, the centre of occupational pensions,” said Helmut Aden, board member at the BVV.

The new defined contribution pension plans will only be available for companies having signed on to collective bargaining agreements. The same applies to some other provisions in the new legal framework, such as subsidies for smaller companies and lower earners, and the right to auto-enrol members if they are given an opting-out option.  

Before the vote in the Bundesrat the minister for the province of Baden-Württemberg, Manfred Lucha, had noted he would vote in favour of the law but criticized it for not going far enough.

He said he doubted it will reach as many companies as planned because many small and medium-sized companies have not joined a collective bargaining agreement.

Lucha proposed a review of the law at a later point and possible adjustments, which could include making it mandatory for companies to offer occupational pension plans.

In a first reaction to the passing of the law on Friday, Reiner Schwinger, head of northern Europe for Willis Towers Watson Germany, noted it might take some time to truly come into effect.

“We might only see the first collective bargaining agreements containing pure defined contributions plans in a year’s time.”

He added: “Many companies will now carefully assess their occupational pension offerings and this might lead to a run on guarantee products in the short term.”

In a survey among insurance-based Pensionskassen, Willis Towers Watson had found only limited interest in the new product without guarantees.

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