Germans to obtain pension premiums

Millions of German employees could receive a pensions premium of up to DM250 (E128) per annum from the government if they begin to invest for their own retirement, according to proposals by the German labour minister Walter Riester.
In a speech concerning the country’s retirement issues in Berlin last month, Riester announced that employees with an yearly income of up to DM60,000 could receive the payment on condition that they begin paying into a personal investment fund as part of a pensions programme.
The minister did not indicate the kind of investment vehicle which might be involved, nor the level of individual saving needed to claim the pensions premium under the proposals.
Ulrich Jürgens, head of the ABA German pensions association’s European working group, says: “Riester sees that the reduction in the level of social security in Germany must happen, so he wants to provide for additional retirement provision.
“His first proposal was to make this obligatory for everyone but he met with heavy resistance, so now he is following the idea of just making this allowance for low paid workers.”
“Such a change would allow the government to argue that any future change in social security has been taken up and compensated by this state initiative.”
Jürgens adds that there would need to be some clarity over whether life insurance contracts or mutual funds be used for the proposed savings initiative.
“If Riester was thinking of mutual funds then probably there would have to be some sort of guarantee for biometrical risk, which is heavily under discussion at the moment.”
He notes that the unions have already expressed opposition to the plans though. “The metalworkers union in Frankfurt has already declared the proposal inefficient as an answer to the present problems of retirement.
“ They would welcome higher payments I’m sure, but they are really in favour of a deferred taxation solution for private retirement provision.”
Alf Ghodes, partner at Munich based consultant Watson Wyatt, adds: “Ostensibly, this is a proposal to create funds for the future, but in reality such funds would be used up very quickly.
“Nothing is concrete, but this is a firm indication that fundamental changes are on their way for the German pensions system and now is just a brainstorming session.”
Hugh Wheelan

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