German industries should be free to introduce auto-enrolment into any industry-wide pension agreement, according to Peter Hanau, professor at the University of Cologne, and Marco Arteaga, a lawyer at DLA Piper.
They should also be allowed to use existing vehicles for arrangements set down in collective bargaining agreements, foregoing the obligation to set up industry-wide schemes.
These are two of the main findings of a study authored by Hanau and Arteaga and published recently by BMAS, Germany’s labour ministry.
BMAS commissioned the study in December last year to look into the ministry’s proposal on the possible introduction of industry-wide pension plans – dubbed §17b-plans, relating to the legal paragraph that would have to be created to define them.
In their 90-page study, the experts agree with the ministry that industry-wide pension arrangements could help increase the number of participants in pension plans – especially if the auto-enrolment option is introduced.
In contrast to the ministry’s proposal, however, the academics see little need for the creation of industry-wide pension vehicles.
They said existing solutions including Pensionskassen, Pensionsfonds and insurance-linked Direktversicherungen could continue to serve as pension plans for companies that are part of an industry-wide pension arrangement.
All pension plans made under this new regime should be based on a defined ambition model, with a guaranteed base pension and possible top-ups.
These pension promises should be covered against employer insolvency in a separate fund within the current PSV lifeboat scheme for those companies that still lack insolvency protection.
Germany’s pensions industry is still poring over the full proposal, but the retirement provision association aba has already published a first reaction, welcoming “the general direction” of the study and the 200-page study on tax incentives in the second pillar. (summary in German)
Heribert Karch, chairman at the aba, said it was good the studies called for “an increase in institutionalisation instead of individualisation”.
He also welcomed the proposal for auto-enrolment to be included in industry-wide pension arrangements because “industries could choose to include whole groups of people without the need for any state control.”
“It is impossible,” he added, “to increase participation of industries or companies if the framework remains too complex for medium-sized enterprises, or if employees are facing the threat of only getting out what they paid in.”
According to Karch, the study on tax incentives, commissioned by the finance ministry at the beginning last year to help increase SME participation in the second pillar, is “a first step” in the direction of simplification.
The authors – academics from the University of Würzburg, including professor Dirk Kiesewetter – say companies with fewer than 20 employees should be given a discount on costs for occupational pensions.
Further, employers should be obliged to top-up employees’ deferred contribution plans, or Entgeltumwandlung.
They also strongly recommended the government launch information campaigns on supplementary pensions to raise awareness among the public and companies.
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