GERMANY - The recent pension fund reform legislation in Germany will run counter to the efforts of the European Union (EU) to create a single pension funds market, according to a study by Deutsche Bank Research in Frankfurt.

Klaus Günter Deutsch, the author of the study, comments: “The complicated set of regulations governing the new reforms reflect an element of intrusiveness.”

While pension fund reform in many EU countries is tending towards flexible, low-cost schemes that work in the interests of cross border mobility, Germany’s national Pensionsfonds market will be restricted to insurance type products, preventing competition to offer optimum pension provision and limiting the freedom of choice of both employees and employers, says Deutsche.

Banks and investment companies wanting to establish Pensionsfonds will not only have to put up the capital themselves, but will need to develop a greater knowledge of insurance regulations. Consequently, the report notes, small to medium sized players may well decide not to enter the market.

Furthermore, Deutsche Bank believes that the new Pensionsfonds won’t be internationally competitive and will blunt domestic business if the market is opened up under pressure from the EU.
Deutsch does point out, however, the final directives governing the Pensionsfonds have not yet been published, but add that they are not expecting any major changes to the announced legislation. “To some extent it depends on the Ministry of Finance. But it’s really a matter of degree,” says Deutsch.

Deutsche Bank suggests an amendment to the new law should be passed in the next session of Parliament to make the pension funds more internationally competitive.

The new laws also mean there won’t be any real defined contribution (DC) schemes in Germany, since “companies have to guarantee a minimum of paid in contribution,” says Deutsch, making it less attractive for companies to set up Pensionsfonds schemes unless they can go to DC type structures.