The Federation of German Consumer Organisations – vzbv – and the state of Hesse have proposed a standard product, or Extra Rente, for private pensions to reform the system.

The proposal aims to fix some of the problems brought by the privately funded pension system – Riester-Rente – since its introduction almost 20 years ago, precisely at the time when the government coalition weighs up possible changes.

Dorothea Mohn, head of the financial market team at Vzbv, told IPE that now “the products that consumers plan to use for their pension provisions are too expensive and of low quality, and capital investments do not generate enough return. The products are expensive because of management costs, high commission fees and high guarantee costs.”

“The quality of saving for consumers will improve through a standard product,” she said.

A standard product would be different from a pure state fund because it would be independent from the state and would have no political affiliation.

She added that the state should not have access to the new product’s assets nor should have a say on its investment policy.

Examples of such state-organized products include the Swedish AP7 fund, NEST in the UK, and CalSavers in California, according to a report by Markus Roth, professor of law at the University of Marburg.

“We want to build a public agency that has mainly two tasks: to collect the money of the consumers and to transfer the money to the capital market through tender offers. The institutional market players make an offer based on the terms of investments (and) the agency chooses the best option,” Mohn explained.

Germany’s political parties have been aware of the various problems relating to pension provisions, but at the same time they are reluctant to make critical decisions.

She said that politicians “tend to mask problems and this makes unlikely to carry out a big reform for the long term that brings benefit for the consumers.”

Still, Mohn believes that it would be possible to put into effect the plan for an Extra Rente in the current legislative period.