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Pension reforms must not divide German system, aba warns

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Proposals to reform Germany’s pension system could create an artificial division within the occupational pensions market, something that must be avoided at all costs, according to the chairman of the country’s pension association (aba).

Heribert Karch, speaking at the aba annual conference, said Germany needed to avoid creating a legislative framework that could result in needless competition over the terms of collective bargaining agreements that would see proven providers left behind.

“We do not want that, and we must avoid such a split,” Karch said. “It is therefore important companies can still set terms, not only parties involved in collective bargaining agreements.”

His comments came after German minister for Labour and Social Affairs Andrea Nahles said the government would consider a number of changes to its reform proposals that would introduce industry-wide defined contribution arrangements.

Karch said: “If you do not take into consideration the whole of the [pension] system, then the reforms will only amount to a paper tiger, and none of us wants that to happen.

“We do not want a race between those now called onto the stage and those who have proven themselves – and vice versa.”

Karch insisted on the importance of ensuring all aspects of the pension system are fully thought out before any proposals are passed into law – particularly highlighting the matter of benefit protection schemes and tax incentives, a topic outside of Nahles’s remit at the Ministry for Labour and Social Affairs (BMAS).

In her speech at the conference, Nahles challenged the industry to come up with other ways of protecting benefits.

The reforms would see the direct benefit protection offered by employers severed, resulting in BMAS suggesting that benefits could be protected by the Pensions-Sicherungs-Verein (PSV), but the suggestion has not been welcomed in all quarters.

Evylin Still, head of occupational pensions at Volkswagen, noted at a later panel that requiring the PSV to step in and protect benefits provided by the new industry-wide DC funds would see it take on an additional role.

At present, she stressed, the PSV currently stepped in when there was a company insolvency endangering the benefits provided by Pensionsfonds or book reserve arrangements.

“As I have currently understood the debate,” Still said, “we [PSV levy payers] would in future also have to insure against a capital market investment not working out. That is a completely different type of risk.”

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