2023 'too early' for verdict on German pension reform
The 2023 deadline set by the German government to assess the impact of its occupational pension reform is too ambitious, according to speakers at an industry conference.
At the end of 2023, five full years from the time the government’s Betriebsrentenstärkungsgesetz (BRSG) comes into force, the government will assess the state of play in occupational pensions. However, panellists at a Willis Towers Watson conference in Frankfurt last week expressed concerns about the 2023 timeline.
If the government was not satisfied with the situation it could move to make workplace pensions mandatory, according to Thomas Jasper, head of retirement for Western Europe at Willis Towers Watson.
The BRSG, coming into force next year, aims to expand occupational pensions coverage, in particular in small and medium-sized enterprises and among those on low income. One of the law’s main impacts will be the introduction of defined contribution (DC) schemes, if agreed to by trade unions and employers.
The German government has previously stated that there were alternatives if occupational pension coverage did not expand as a result of the new reform law. The alternatives would be to introduce a mandatory occupational pension system or oblige employers to auto-enrol staff into a workplace plan.
Dirk Jargstorff, head of retirement provision at Robert Bosch Group, urged employers to make use as much as possible of the options introduced by the BRSG. If not, they risked being forced to do something they didn’t want to do, he said.
Thorsten Linnmann, responsible for human resources and global pensions at Lanxess, a chemicals company, said 2023 was “definitely” too short a timeframe to judge the success or otherwise of the DC model introduced by the BRSG.
Many employers and other people in the pensions industry were still struggling to get their heads round all the facets of the new law and its implications, but it was their duty to break this down for employees, he said.
This was a task for the weeks, months and years ahead, and “I hope, not only until 2023,” said Linnmann.
Overall he saw the DC model as a positive step and likely to help boost pensions coverage. However, with Lanxess having introduced a new plan earlier this year, the company had little appetite to start over again, he said – at least at the moment.
The majority (58%) of delegates at the conference only expected a substantial take-up of the DC model from 2020 onwards. A third envisaged this happening starting in 2019, while only 9% anticipated this happening next year.
According to calculations presented by Willis Towers Watson’s Jasper, the BRSG could increase workplace pensions coverage by 25 percentage points, from 40% of employees to 65%.
However, he too questioned whether the five years to the end of 2023 would be enough to measure the effect of the reform law. This was a message that needed to be jointly communicated to the government, he said.
Willis Towers Watson is to launch a new index to track the effect of the BRSG. The German Pensions Index will capture the development of the German occupational pensions landscape over the coming years starting from the end of 2017. It will monitor the use of different types of plans, opting out models, salary sacrifice, matching arrangements, and more.
Bosch re-assessing bAV Riester
Technology giant Bosch could decide to re-introduce a state-subsidised Riester pension plan as an occupational offering given that the BRSG has made this more attractive, according to Jargstorff.
Bosch used to offer employees a Riester pension savings option more than 10 years ago. Jargstoff said that a comprehensive analysis recently carried out by the company in light of the BRSG had shown that it was an option worth re-examining.
The results of the company’s analysis were “at least in their unambiguity, surprising”, he said. However, he emphasised that the company had yet to come to a final decision about offering a Riester.
Riester plans have primarily been used by private individuals rather than being offered by employers, but the BRSG has made workplace Riester, or “bAV Riester”, more attractive.
From next year, payouts will not be subject to social security payments, as was already the case for privately adopted Riester contracts. In addition, the basic allowance has been increased from €154 to €175.