BVI explains poor take up for new private pensions
GERMANY – A complicated regulatory framework and high expectations for the new occupational pension schemes are to blame for the poor take-up rate of the new private Riester pension funds, says Wolfgang Raab, vice president of the BVI, the German asset management association.
Raab says the new private system needs to be simplified to deal with confusion surrounding minimum and maximum contribution rates and exit penalties.
“Investors are hesitating to sign contracts amid warnings from consumer protection agencies that the new funds come with limited tax incentives and are not very flexible, particularly with regard to early exit penalties,” he says.
Raab says that between October 2001 and March 2002, there was no change in the 71% of people that had no intention of taking out a private Riester pension. The number that said they intended to only rose 2% to 23%, whilst those that already have signed up fell from 8% to 6%.
Raab argues that reform to the second pillar is having as much impact on the private sector as the regulatory framework that controls it.
“It’s not that the Germans don’t understand the importance of saving for their retirement. Many believe or have been told that the new sector-wide or company occupational schemes will offer a better deal.
“It’s too early to measure the success of the reforms to the second pillar, as the first occupational schemes only recently gained regulatory approval.
“A lot of people are probably holding out to see how these perform before committing themselves. After all, they’ve got until the end of the year before they lose their right to special tax breaks.”
Raab suggests the new occupational funds also need a little more fine tuning. “The second pillar reforms are a little stringent. There needs to be greater freedom of choice between collective and individual pension fund systems and between guaranteed products with lower returns and those without guarantee but with higher returns.”
Furthermore, he attacks the way reforms are creating hybrid defined contribution and benefit schemes. “We need pure DC schemes whose performance isn’t adversely affected by guarantees,” he says.