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Impact Investing

IPE special report May 2018


German pension assets ‘set to surge to €4trn’

GERMANY – German occupational pension assets should rise to some €4trn by 2030, as the government continues to promote the second pillar, according to consulting firm A.T. Kearney (corrects figure).

In a study of all forms of retirement provision, A.T. Kearney also said the prospects for private pensions were “equally as rosy.” For these pensions, it sees a market totalling €3trn by 2030.

The authors examined all five forms of occupational pension administration in Germany as well as all forms of private retirement provision, including the so-called Riester and Rürup pensions, life insurance policies and funds.

Nonetheless, A.T. Kearney said that despite the significant offering of tax-privileged corporate and private pensions, many German workers were still reluctant to take them up.

“Our estimates are that by the end of 2005 more than 60% of working people still will not have taken full advantage of the new…pensions,” said consultant Andreas Pratz.

Pratz attributed the reluctance to both the complexity of the various pensions as well as the performance of several of the capital-based products.

Elaborating on the latter point, the consultant said they were burdened both “by the requirement to deliver a guaranteed rate of return and the regulation related to that.”

From 2007, Pension funds tied to German insurers are likely to reduce their guaranteed return on contributions to 2.25% in 2007 from 2.75% now. The same is likely to be true for life insurance policies.

Pratz also said that to further boost demand for second-pillar pensions, the government should consider creating a pension modelled after the ‘401k’ plan in the US.

The US pension was compelling “because its administration is simple, it tax benefits clear and its products transparent,” he added.

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