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German social ministry unveils comprehensive pension-system reform

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German social and labour affairs minister Andrea Nahles has presented her proposal for the comprehensive reform of the country’s pension system.

German newspapers and talk shows have already begun to debate the government’s proposals in earnest, but, so far, they have focused almost solely on the first-pillar system, a fact lamented by industry expert Heribert Karch.

In a blog, Karch – a board member at MetallRente and chairman of the board at occupational pensions association aba – questioned the absence of occupational pensions from the debate. 

“Everything else in the country is broadly debated by the public except occupational pensions – these are considered ‘shadow pensions’,” he said. 

“But, in fact, the final reform draft is nothing less than the full integration of occupational pensions into pensions policy. This might even turn into a fully fledged pension system with a dual core – the state and the companies.”

The reform proposals of Nahles, a Social Democrat, have not enjoyed the full support of the CDU, its government coalition partner, particularly with respect to the first pillar.

Nahles’s proposal includes a minimum 46% first-pillar replacement rate “for everyone” until 2046 – a minor drop from the present rate of 48%.

First-pillar contribution rates, which now stand at around 20% of income before tax, would remain below 25% until 2045.

The proposal also recommends a minimum pension for long-term contributors, as well as eventually raising pension levels in former East Germany to those in the west.

In the third pillar, Nahles wants to review the cost structures of so-called Riester products and incentivise the industry to produce a standard Riester product to serve as a benchmark.

Her proposal also addresses the second pillar – mainly the new law to strengthen occupational pensions, the Betriebsrentenstärkungsgesetz, which the ministry presented a few weeks ago.

The aba, in its preliminary response to the draft consultation, argued that the possibility to set up occupational pension plans without guarantees should also be an option for companies that are not part of collective bargaining agreements (Tarifplan).

The government’s proposal for new industry-wide pension plans only covers industries that have such agreements on minimum wage and other social standards in place.

“It is therefore hard to fathom,” the aba said, “whether the planned measures will lead to a higher coverage at the expected level. An evaluation of the process seems to be in order.”

The association also pointed to possible loopholes in the draft that it said could lead to companies being held accountable for deficits in pension plans despite the ‘no-guarantee’ set-up.

For its part, the German association of insurers (GDV) welcomed the reform in principle but rejected the idea of a blanket ban for guarantees in new vehicles.

“A legal ban on any form of guarantees in the new pension plans is counter-productive,” it said. “It should be up to the social partners in each industry to decide whether they want to allow guarantees.”

The GDV also called for freedom of choice for all employers, including those outside industries with bargaining agreements, or those introducing opting-out models.

Meanwhile, the association of insurance brokers (Versicherungskaufleute) said it doubted whether social partners had enough expertise to make the right decisions.

It said each new pension plan should therefore only be set up under the advice of one of its members.

Nahles’s full reform package can be found on the social ministry’s website.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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