The Heidelberg-based ABA, the body responsible for promoting occupational pension provision in Germany, runs a tight ship. “We have just eight full time staff, three of whom are lawyers, the others include secretaries helping with our seminar programmes, our magazine and so on,” explains Klaus Stiefermann, managing director of the organisation. It is even more stretched now with pensions issues shooting up the public’s and politicians’ agenda.
“When, for instance, the government agencies have had queries, we have put together a group of experts with whom they can get in touch.” This gives ABA a crucial role in “translating between the two sides”, as Stiefermann puts it neatly. “So both get to know the other’s ideas. We think this is important, as it gives the government side the feeling that they are not far away from the ground.”
Its membership certainly provides a good cross section, as around 800 of its 1,300 members come from the corporate sector, with virtually all of the large employers represented and many of the mid-sized companies too. “The others are specialists operating in the area, such as insurance companies, actuaries, consultants and other experts.” It also includes a number of trade bodies, employer associations and unions on both a federal and sectoral basis, as well as banks and other financial institutions. “Our membership is growing!”
The roots of the organisation go back to the 1930s, when it grew from public and private sector pension needs for representation. It is divided into six different working groups, which the individual members can gravitate towards depending on their interests and needs, he explains. “But you just join ABA and can be involved in whatever groups you wish.” These groups cover Pensionskassen, support funds and direct insurance, with a section each for the public sector and actuaries, and now the recent addition of a Pensionsfonds group.
In addition, there is a whole series of smaller working groups, covering labour law, taxation, asset management and so on. “As well as supporting the six working groups, these working groups help the board of the association to come to their conclusions when it comes to formulating a position in response to political or other developments.”
ABA’s involvement in the development of the thinking about pension funds gives a clear example of how the association responds to changes in the climate. This idea goes back to the research Deutsche Bank issued in the mid-1990s about occupational pensions, which argued that it would be more efficient to move from internal book reserves to external pension vehicles like pensions funds, he says. “Originally, there was resistance to the idea, as companies felt that the bank was trying to get its hands on their assets. The main decision you have to make as a company is whether you are able to earn internally an interest rate of over 6% per annum – the magic number for taxation reasons within the book reserve system.” The argument of the corporate executives was that if the financial sector tells us “we are inefficient when we are not reaching the 6%, then we as managers should sell everything and put it on the capital markets and gain more.” The discussion was highly charged and emotional initially, Stiefermann recalls.
But when companies needed to meet US GAP accounting requirements, they faced a problem in communicating what their book reserves meant. “Was it a funded system or not?” So there was interest in having it separate from the balance sheet.
From ABA’s point of view the key issue in a pension funding vehicle was that any such arrangements should be an occupational pension plan, which means that it has to have “high security, in that it should be safe from employer bankruptcy so that the pensioner will always get the money if the fund fails to work as it should”.
In addition, pension funds could not be just an investment product. There are always biometric risks involved, he says, referring in particular to the need to provide lifelong pensions. “This annuity is not just at pension age but for the family if the breadwinner dies or meets with an injury.” That is exactly where the idea of pensions started in Germany during the transition to industry from agriculture, it was not for old age benefits initially, he points out. In fact, it was the biometric benefits provided in the chemical industry through their Pensionskassen that was the blueprint for Bismarck, who is recognised as the father of the German social security system. There is in fact a close linkage between the public and the private systems as a consequence, he adds.
The other factor was that it was always a financial decision for the employer to make, as part of their “total compensation” approach, even though no one used such terms a 100 years ago.
The focus of the Deutsche Bank research was on the Anglo-Saxon pension fund and investment aspects. “And in the mid-90s, it was a very positive time for stock exchange investing,” Stiefernmann comments.
ABA’s original approach was to look at the four existing vehicles in the market and ask if Germany really needed a fifth one, or could one be remodeled? “We felt we could change both the Pensionskassen and Unterstutzenkassen to make them ready for Europe.” These views were published in 1998 and even included an annexe setting out the legal framework, just as a government would do. Within ABA there had been a very broadbased discussion across the wide diversity of its membership.
When the Social Democrats took over power, they undertook social security reforms in a major way, with the discussion initially focusing on reducing the pay-as-you-go system, and moving to a more capital funding approach. Initially, the government moved to reform the individual third pillar level, but ABA kept pointing to the need to tackle the occupational and company level provision. “With the support of both the employers and employees, we got the focus on this. And the view is that occupational pensions should be favoured.”
The problem ABA faced was that the government had already progressed its ideas and were beginnig to write draft laws with the focus on the third pillar. So when the association became involved, things happened in a rush. For example, the government did not want to have a pure investment product but was insisting that biometric risk be built into the third pillar products.
Originally, the government wanted to put what it had in place for individuals into the occupational system, in other words the full ‘Riester rente’. “They did not realise that you needed different legal frameworks and that you could not switch one system to the other. The new legal framework does not work completely satisfactorily as a result,” he says.
ABA kept pointing out that all this could be managed, but it was not to the benefit of the employee as it was adding to the costs and would reduce their benefits in the final analysis. “We keep saying that we should find an easier way. And this is what we are still working on!” The association is involved in the discussions on all the relevant laws at the expert consideration stage. “Because of our broad base of members, if we agree on something, it is likely to be acceptable.”
As to what lies ahead, on the Pensionsfonds front, changes have already been made (see page 12). But he points to the problems posed to the supervisors with the ‘prudent man’ approach, as previously there have always been clear cut investment limits, making Pensionskassen, for example, easy to regulate. “Here we are moving to a new philosophy.” He sees this posing difficulties, as while they have to be cautious, they have probably been too much so in the slow approval rate of new plans.
Stiefermann points to another change on the landscape being that up to recently employers in the private sector could choose whether or not to offer pension benefits. The problem was that occupational pension provision was on the decline rather than increasing. So should pensions be made mandatory to get coverage? The new legislation gives employees willing to undertake deferred compensation the right to request it and adds to that the tax and other incentives. “This does not mean we will ever get 100% coverage, but now we have the freedom and different methods of provision.” In his view, it is more beneficial for companies to make moves about pensions rather than to be forced into providing benefits.
What ABA is particularly pleased about is that pensions is now a topic in collective bargaining – some 15m of the German workforce are covered by these agreements, he notes. “That is where it belongs, it is part of total compensation question. This is very positive. It was the help from the employers and unions that really showed the politicians that this was the right way forward.”

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