Germany’s pension fund association (aba) has endorsed government proposals to give Pensionfonds more flexibility.
In August, the Labour Ministry (BMAS) called for stakeholder comment on a proposal that would allow the relaxation of minimum guarantees during the payout phase from a Pensionsfonds.
In Germany, defined contribution (DC) funds have to be set up with a minimum guarantee, or Beitragszusage mit Mindestleistung, and, if a Pensionsfonds is used as a vehicle, the payout phase has to contain an insurance element.
At present, Pensionsfonds are used infrequently on retirement but rather as a financing instrument for pension payouts.
The BMAS’s new proposal aims to change the norm by allowing the application of a 0% discount rate on all pensioners’ assets in Pensionsfonds.
In a statement, the aba welcomed the changes, as Pensionsfonds with minimum guarantees are considered the “German alternative to international defined contribution plans”, which enjoy greater flexibility.
One of the main advantages of the government’s proposal, according to the aba, is that it “makes it possible to have a less restrictive and more flexible asset allocation, which is particularly fitting in light of the low-interest-rate environment.”
If the proposal is passed, Pensionsfonds will no longer require separate asset allocations for active and retired members.
“This will create opportunities for higher returns,” the aba said.
The association, however, did raise a number of concerns, most notably the volatility of pension payouts that people “will have to deal with”.
It said German workers had grown accustomed to “very predictable” pension payouts and that the new regulation would guarantee only a minimum, with “volatile top-up elements”.
Further, it warned that company liabilities could increase in certain cases under the new regulations compared with the current ones.
Overall, however, the new regulation can help “increase acceptance of and participation in the second pillar”, the aba said.
Another proposal by the BMAS would allow certain employees to opt out of the protection offered by the insolvency fund PSV.
The aba said it had questions regarding taxation on this issue, but it generally welcomed the proposal.