The group of experts of the German Federal Minister for Economic Affairs and Climate (BMWK) have written to minister Robert Habeck, recommending strengthening occupational pensions through a standard product, instead of setting up a public fund in the third pillar pension system.
Company pension schemes have “proven themselves”, the experts explained in their letter, saying it makes sense to push for their take-up by the employees in small and medium-sized companies by means of a “standard company pension” product, which they say is a better strategy than building a new fund.
The group of experts (Wissenschaftliche Beirat), who advise the ministry on economy policies, are taking a different stance on the public fund in the third pillar to that of the governing coalition of Social Democrats (SPD), Greens and Liberal Party (FD), that agreed in their pact at the beginning of the legislative period on the idea of establishing such a fund.
Wissenschaftliche Beirat is also going against the view of the BMWK that described as “regrettable” the choice made by the Fokusgruppe Altersvorsorge - the stakeholders’ group that laid out reform proposals for the third pillar to the government - that voted against the establishment of the public fund.
According to the ministry, with a public fund and an opt-out option costs for marketing investment products and asset management costs would “drastically” decrease.
The market for private pension products is characterised by information asymmetries, high distribution costs, excessive asset management costs and complexity, it added.
According to the group of experts in the BMWK, examples from abroad show that public funds record below-average returns, agreeing on the fact that individual, capital-funded pensions in the third pillar, and statutory guarantee, lead to high administrative costs, as in the case of the Riester-Rente contracts.
Therefore, the experts believe that collective forms of old-age pension provisions are preferable to individual ones.
The occupational pension association Aba has also spoken against the public fund in the third pillar, saying that existing company pension schemes already offer options to employees, but have to be expanded.
Company pension schemes can be designed to be particularly cost-effective, it added.
Experts advising the Economic Affairs and Climate Action ministry “welcome in principle” instead the idea of building a capital-funded component in the first pillar scheme Deutsche Rentenversicherung.
The government plans to finance the switch to equity investments in the first pillar with €200bn until 2035, according to reports.
The experts consider the so-called Rente bit 63 rule, the option of early retirement without deductions for employees who have paid contributions for pension benefits for at least 45 years, “highly problematic”, leading to the loss of a large number of contributors, and exacerbating the shortage of skilled workers, they said in the letter.
Contrary to beliefs, well-trained, above-average earners and healthier people mainly take advantage of the Rents mit 63 rule, they said in the letter to the ministry.
The experts therefore recommend that the government should prioritise those who suffer from health conditions or low earners who want to retire earlier.
Read the digital edition of IPE’s latest magazine
No comments yet