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Analysis: Pensionsfonds model to get new lease of life in Germany

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In the debates around Germany’s new industry-wide pension plans without guarantees only two vehicles are being considered: an insurance contract or a Pensionsfonds.

Under the country’s Betriebsrentenstärkungsgesetz (BRSG) reforms, Pensionskassen would also be allowed to serve as providers. However, the insurance-based Pensionskasse model adds more administrative layers.

This means providers of Pensionsfonds could get a new boost, as the vehicle already has a more flexible approach to pension guarantees.

When it was created in 2002, the Pensionsfonds model was derived from an insurance-based pension plan. That changed in 2005 when the insurance element was taken out, prompting greater interest.

In 2015, pension payouts from Pensionsfonds were given a flexible element, based on changes made by the Bosch company to its scheme.

The new world without any guarantees – as introduced through the BRSG – should provide “the perfect framework” for the Pensionsfonds vehicle, according to Carsten Velten, head of pensions at the Deutsche Telekom and chairman of the Pensionsfonds group within Germany’s aba pension association.

“The Pensionsfonds is entering a playing field that is familiar,” Velten wrote in a report published in conjunction with this year’s Handelsblatt occupational pensions conference in Berlin.

On the other side of the playing field insurers are preparing their vehicles presenting insurance-based solutions without guarantees. Conversations on the sidelines at recent conferences have seen people siding with the insurers argue these providers are more familiar to Germans and have people’s trust.

Those rooting for Pensionsfonds say the new world needs flexible instruments in which employee and employer representatives can have a say. This structure is already in place in many Pensionsfonds.

Taking it slowly

The negotiating parties are still working out the basics and will not be making a choice of vehicles for a while now.

The Pensionsfonds model has so far only been used by some larger companies as a way of outsourcing some of the new employees’ pension rights. Regulatory limitations have not yet allowed for a full outsourcing of all liabilities to this vehicle.

However, since the more flexible pension payout was introduced in 2015, more and more multi-employer Pensionsfonds started to appear in this area of the market.

In 2014, Metzler was only the second non-insurer to set up such a vehicle and last year the building society Wüstenrot outsourced its pensions to this provider.

The first one had been banking group HVB with an industry-wide offering for the chemical industry which actually was the first Pensionsfonds to be set up in 2002.

Mercer became the newest addition to the club of multi-employer Pensionsfonds providers when it launched its vehicle in November last year.

In total, more than 30 Pensionsfonds managed around €33bn in assets at the end of last year – but the largest company pension funds (RWE, Siemens, IBM and Bosch) account for almost 60% of that.

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