German pensions system "too complicated"
GERMANY - Supplementary retirement vehicles need to be simplified in order to boost the country's second pillar, the German banking federation "Bankenverband" has suggested.
Pensionskassen and pensionsfonds last year saw their gross income from contributions stagnate at the 2006 level of €3.6bn, according to recent statistics published by the insurance federation GDV.
In total, the number of new contracts for retirement products signed with life insurers, pensionskassen and pensionsfonds sank by 6.4% to 7.9 million new contracts last year.
Only in the field of Riester-Rente, a state-subsidised private supplementary pension, was there continued growth.
The number of contracts in total grew 29% to 8 million with the number of new contracts in 2007 growing 2.7% to 2.1 million.
"But the number of people eligible for a Riester-Rente is estimated at 30 million," Bernd Brabände, CEO of the banking federation, pointed out in his presentation of a report on the German pension system.
Similarly, the 17 million people with pension benefits in the second pillar system falls more than 20 million short of the actual working population, he noted.
"Occupational pension provision needs to be simpler, more flexible and return-orientated," Brabänder added.
He criticised the complexity of the second pillar in Germany with its large number of pension vehicles including pensionskassen, pensionsfonds, CTAs and life assurance products.
"Many small and medium-sized companies feel swamped by the possibilities in occupational pension provision," Brabänder explained.
"They shy away from the organisational and logistical burden but even more they fear unexpected tax, legal or financial consequences which might arise from promising benefits to their employees," he suggested.
The banking federation wants to see the second pillar simplified with similar regulatory systems for the various vehicles.
Furthermore, it sees a strong need for better financial education among the public in order to increase the understanding of capital markets.
When it comes to the pension funds, the banking federation would like to see the 'prudent person' principle replacing strict investment rules which are currently applied to pensionskassen.
However, the investment industry noted in response most pensionskassen are so far not even reaching their full potential under the strict investment regulations.
For example, most have equity exposure of around 10% while under the law 30% and in some cases up to 40% would be allowed.
Industry representatives say this is part of the "German mentality" which comes with a certain risk-averseness.
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