With the creation of the new sector and industry-wide pension funds in Germany as part of the Riester pension reforms, it was only a matter of time before large established groups with adequate resources began setting up company-wide schemes for their workers and jumping on the pensions bandwagon that has already seen some 10m workers covered by collective bargaining agreements.
Deutsche Telekom (DT), however, had already set out its stall in the new pensions market five years ago when it struck a collective bargaining agreement on deferred compensation for its Germany-based workers.
By the beginning of this year when the reforms were implemented, 30,000 workers had signed up for this agreement when DT announced it was working with the service industry’s union, Vereinte Dienstleistungsgewerkschaft (ver.di) on expanding the new pensions model into a full-scale Riester Rente pensions arrangement that would cover its entire 180,000 Germany-based workforce.
DT says the core elements of the new agreement are designed to enhance its pensions capability with greater flexibility and better opportunities for returns.
The provisions under the new model are quite extensive and cover insurance, disability benefits and surviving dependents’ benefits as well as straightforward pensions income. Moreover, state allowances which employees will now be able to obtain for their private pension scheme can be paid into the new fund.
DT says its aim is to create an integrated pensions system that offers its group employees in Germany the highest level of return and security in optimum conditions. The new arrangement includes insurance funds as well as a fledgling capitalised pension fund.
DT claims the structure of the new system is such that not only can it generate higher rates of return but also offer greater security through its new insurance set-up.
All employee contributions are now paid into the new system which regroups retirement income and insurance into one package.
As with the majority of the other new pension funds in Germany, the new elements are designed to be supplementary to existing retirement arrangements.
The traditional pension system, which consisted of direct insurance and deferred compensation schemes, will continue to exist but will sit alongside three new insurance schemes in the new pension plan, which employees will finance up to 50% themselves: retirement income, life insurance and occupational disability insurance.
The employees themselves are free to decide how much they wish to put into each part and any deferred compensation credits saved under the pre-existing model have already been transferred to the new system.
Because of the sheer size of its new retirement and benefits operation and the adminstration operation that will be needed to make sure it runs efficiently, DT, like some of its peers, has decided to set up a separate legal entity to run it.
DT says the new management company will consist of a board of directors, a supervisory board and a members’ representative assembly.
Whilst DT forges ahead with the insurance elements of its new arrangement, given the experience insurance companies in Germany traditionally have in providing retirement funds, it has appointed a consultant, Frankfurt-based Towers Perrin, to help it set up and run the capitalised pension fund element.
DT has asked Towers to instigate beauty parades as the first step in a manager selection process, which it says it would ideally like to have completed by the end of the year.
Towers will also work with DT on establishing an investment committe to determine the fund’s eventual investment strategy and monitor its performance.
DT says it doesn’t make sense to determine an investment strategy until a manager has been selected and until they have a rough idea how much will be going in and out of the fund.
Besides the investment committee, there will be other committees, and DT says employee participation and representation will be encouraged at all levels.
For the insurance elements of the new system, DT says it has entered into partnership deals with three insurance groups, Allianz, Schweizerische RA (Swiss Life) and Victoria.
Allianz will look after the surviving dependent’s insurance fund, providing a maximum lumpsum of e125,000 to any surviving dependent of a DT employee at retirment age.
Swiss Life will manage the scheme’s life insurance fund and DT says pensioners can expect a maximum monthly payout of e1,200.
Finally, Victoria will look after the disability benefits funds. The size of the payout from this fund depends on at what age a retiree needs the benefit.
There are no statistics yet available about how many have said they will switch to the new scheme or take out a supplementary policy with it as DT has only just started marketing it through roadshows, brochures and the internet.