German government unveils draft fund deregulation
The German finance ministry has unveiled a draft law providing for deregulation of Germany’s two types of occupational pension funds, the Pensionskassen and Pensionsfonds.
Pension funds will, for the first time be permitted to operate anywhere in the EU and the measure also removes restrictions on how the funds invest their holdings. Under current law, Pensionskassen may invest up to just 35% of their holdings in equities.
Such a crucial change implies a re-evaluation of how Pensionskassen are regulated. Because they are treated like insurers by German regulator BaFin, they must abide by the same investment restrictions, including those on equities.
Although the draft law pension funds much more freedom, it also sets higher capital adequacy levels. Further detail on this was not disclosed.
Finally, by introducing last year’s EU pensions directive into German law, the measure permits EU occupational pension funds to operate in Germany. However, these funds will have to comply with existing German pension standards, including, for example, guaranteeing all retirement savings from workers.
Unveiling the draft law, Barbara Hendricks, state secretary in the finance ministry, said it “marked a milestone in the creation of a single European financial market”.
Whether the measure takes effect in its current form depends on parliament. Hendricks said the draft law would be submitted to the federal cabinet for approval later this month and to parliament early next year. Germany has until September 2005 to introduce the EU pensions directive into national law.
At last count, Pensionskassen accounted for about e72bn of the estimated e350bn in German pension assets. Pensionsfonds, which were launched at the start of 2002, account for e147m.