The German government plans to build a foundation under public law called Stiftung Generationenkapital to manage up to €150bn in assets in the long term for an equity fund to turn the first-pillar pension system into a partially funded platform based on the Aktienrente concept.

The government will start to build the equity pension fund this year with starting capital worth €10bn, setting up a foundation that will “be anchored in law and independent from politics” to stabilise the first-pillar pension system, finance minister Christian Lindner said during a town hall meeting last Friday in Berlin to introduce the plan.

“My idea would be that we will inject €10bn every year in the next 15 years,” Lindner said, adding that talks are ongoing on the matter within the governing coalition.

The cabinet will set a framework for investments – for example, ESG criteria – but then the assets would be “in the hands of absolute professionals” to build the safety gap without political interference, he added.

The assets will be managed through the nuclear waste management fund KENFO, according to the finance minister who declined to comment on how they will be invested.

In a first step, the state will finance the €10bn through credit, but in the Generationenkapital member contributions could also flow in the future, Lindner explained.

Towards the end of the next decade, assets in the foundation will reach a three-digit billion sum so that returns are used to stabilise the level of pension and contributions, he said, adding that first-pillar pension members will start to see the impact in 2036.

The state will take over the risks resulting from investing the assets by deploying capital through the national budget when necessary, according to Lindner.

Hubertus Heil, minister for labour and social affairs, is preparing the reform of the first-pillar pension system with the Rentenpaket II planned in the next few weeks, according to reports.

KENFO model

The Deutsche Rentenversicherung (DRV), which manages first-pillar pensions, receives €100bn of funding every year from the state budget, could reach a total of over €128.8bn per year by 2027, on top of contributions, according to figures shown on Friday to introduce the Generationenkapital concept.

Lindner said that the number of people that will have to contribute to the first-pillar system has to increase through a responsible immigration policy, improving family and working life, working longer and better wages.

Anja Mikus at Kenfo

Anja Mikus, KENFO

Anja Mikus, KENFO’s chief executive officer, said the nuclear waste fund has a target return of 3.8% on average per year over a period of 80 years to fulfill its task to finance the costs for the disposal of radioactive waste, with investment in equities, bonds and private markets.

“We have to invest in high-growth regions [worldwide],” she said, adding that KENFO mandates specialist asset managers to invest in emerging market equities or mid and small-caps, for example.

KENFO manages its assets actively, the CEO said, giving as an example the decision to add value equities to its portfolio through new mandates to counterbalance US growth equities making up a large part of the MSCI World index.

Mikus underlined that the nuclear waste fund is independent from politics and governments changing at every election.

On the KENFO board of trustees are representatives of the Federal Ministry for Economic Affairs and Climate Action, Federal Ministry of Finance, the Federal Ministry for Environment, Nature Conservation, Nuclear Safety and Consumer Protection, and all parliamentary groups of the German parliament (Bundestag).

The latest digital edition of IPE’s magazine is now available