German reform go-ahead
The Bundesrat upper house of the German parliament has approved the centre-left government’s landmark pension reforms, paving the way for reform of the country’s overburdened social security system and the introduction of the new ‘Pensionfonds’ private pension vehicle.
The new law will reduce the state pension allowance from 70% to 67%, but allow workers to pay tax-advantaged contributions into personal pension arrangements.
Expected inflows into such retirement funds are expected to reach between e350-550bn by 2008.
To start with, contributions will be small – 1% of gross salary in 2002 – but the rate will rise by 0.5% per year until it reaches 4% in 2008. Contributions up to e525 will be tax deductible, increasing by e525 every two years to a maximum of e2100 in 2008.
The new Pensionfonds vehicle, an addition to the four existing means of German pension saving, comes under insurance regulation and also has to be covered by a guarantee from the provider that the nominal value of contributions will be safeguarded.
The Bonn-based BAV German insurance regulator is currently putting together proposals that could liberalise investment for Pensionskassen and bring ‘Pensionfonds’ more in line with the forthcoming European directive on pension funds.
Volker Greve, a civil servant at the BAV, comments: “We are working on the investment rules for the pensionfonds, but I am not authorised to give further information.”
The adviser commented that while the current ceiling on equity investments for insurance companies was 30%, this could go higher with regards to normal calculation methods employed.