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Germany unlikely to see new DC plans before 2020

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Germany’s largest union will not commit to backing any new defined contribution (DC) pension plans before autumn 2019, according to its board.

IG Metall, which has more than 2m members, was among the unions that backed Germany’s Betriebsrentenstärkungsgesetz (BRSG) reform, which will introduce legislation allowing pension funds without guarantees for the first time.

However, speaking at an institutional investor summit in Frankfurt this week, Jürgen Kerner, board member at IG Metall, said: “The issue is on our agenda for the annual meeting in autumn 2019 and that is when we will decide whether or not so set up a pension plan without guarantees.”

It means Germany will have to wait for the first industry-wide pension vehicle without guarantees until 2020, as the metal industry is normally seen as the testing ground when it comes to collective bargaining talks.

Kerner’s remark surprised audience members and panellists at the event, organised by German consultancy group Faros, as it implied the unions’ agreement to the new legal framework was more of a theoretical nature.

German flag

Germany’s BRSG law will introduce pension funds without guarantees for the first time

The BRSG comes into effect from January 2019. The DC-type plans can only be created as part of a collective bargaining arrangement (Tarifvertrag) between employer and employee representatives of an industry, and are not mandatory. 

Kerner said one condition for IG Metall’s agreement to a DC plan would be that employers put some money into any new vehicle to start building a ‘safety buffer’.

Benedikt Köster, senior vice president for group pensions at Deutsche Post DHL, said providing such a buffer was only one way of setting up a pension plan without guarantees, and that other solutions could be found.

He said that the current framework was “very good” but had to be brought into reality as soon as possible.

“There is a large group among the working population threatened by old-age poverty and we have to do something for these people within the new framework,” he said. “If we wait another four years then the authorities will come and probably introduce a mandatory system for everyone.” 

However, Kerner said workers “lack trust in funded pensions” and that the new DC model “will take time to build”.

Köster argued that unions should be able to convince their members to participate in the new pension products as they would have a say in asset allocation and the selection of service providers.

Kerner said he “cannot see us collecting money and then giving it all to just one provider for administration and management”. He would rather select individual service providers.

Talks under way – but no commitments yet

Kerner confirmed current talks between employer and union representatives on the details of such a new pension fund for Germany’s metal industry.

“We are discussing models without any side committing to anything,” he said.

Employer contributions and other payments would become part of the annual collective bargaining talks only if union members agree to the DC concept. The talks are traditionally held in late autumn.

Ulrich Mix, managing director of Deutsche Pension Group, said it was possible that a large company could create a Tarifplan by the end of 2019 through a company-specific collective bargaining agreement with their employees. However, the other panellists in Frankfurt indicated there was a 50/50 chance of this happening next year.

After Kerner’s remarks about IG Metall’s support for the DC plans, one audience member commented: “Now the chances of any Tarifplan ever being created are 50/50.”

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