Hubertus Heil, the German minister of labour and social affairs, has made a plea to social partners to use the new defined contribution (DC) type of schemes for occupational pensions.

“I call on social partners: use this model, it is good for all,” the minister said speaking at a virtual annual conference organized by the occupational pension association Aba.

The minister stressed how important it was to sign the first agreement based on the social partner pension model between the union Ver.di and Talanx.

“This is the right way to optimally organize a supplementary [form of] pension”, he said. The point is now how to finance capital-funded old age provisions with the employees that are not required to sign up for occupational pensions.

“This is why we have to further improve the framework for occupational pensions [and] the role of social partners for company pensions must be further strengthened,” he added.

The aim is to increase the number of employees who can claim an occupational pension and that is the reason why the government has already improved the framework for such pension agreements, he said.

The minister mentioned the reform of the Company Pensions Act – Betriebsrentengesetz – with occupational pensions organised through Pensionskassen now secured by the mutual insurance association for German occupational pension schemes, Pensions-Sicherungs-Verein VVaG (PSVaG), in case of employers’ insolvency.

“The occupational pension is the best and most efficient way for a complementary pension. It is cost-efficient and reliable,” Heil said.

The tax incentives for employees with low wages doubled and the income threshold increased, he added. “Potentially over 16 million employees can benefit from the [tax] subsidy,” he said.

Occupational pensions are growing, he noted, with over 18 million employees who have signed up for such pension arrangements, but “not so strongly”.

Georg Thurnes, chair of the board at Aba, said that collective bargaining models are “favoured” but prevail the “disappointment” for the fact that the social partner model “does not fly yet”.

Social partners can help employees to sign up for a “cost-efficient, profitable and very secure company pensions” on one side, and on the other a legislator could allow for implementation of such models if companies demand it.

Richard Nicka, vice president of the pension fund at chemical company BASF, added that in order to spread the social partner model it is necessary to use the pure DC – or reine Beitragszusage – beyond the social partner model.

Pure DC models can work because guarantees do not lead to returns to cover pensions, he said.

“The pure defined contribution is therefore indispensable”, he said, adding that it is necessary to use it at company level.

“In direct talks with employer representatives it is possible to clarify that the lack of guarantees is not a disadvantage and it does not mean a loss of security, but [it is] rather a requirement for good returns,” Nicka explained.

Dirk Jargstoff, chief executive officer of the Bosch Pensionsfonds, pointed at the three main issues coming up in the discussions on the social partner model, namely the lack of guarantees, the reduction of pension benefits under certain scenarios and the mechanism of participation in the model.

The pure DC model is the opportunity not only to steer towards opportunistic capital investments, but also “to organise pensions on the basis of realistic assumptions,” he said.

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