In July, Thomas Richter took over as head of the German asset management association. He tells Barbara Ottawa he wants to improve the industry's image in retirement provision
The Bundesverband Investment und Asset Management (BVI) has always had a lookout on pension regulation. Its new director general, Thomas Richter, has extensive experience in asset management, in which he has been working since 1998, and wants to focus even more on this area.
"People are not aware that a funded retirement system does not work without the asset management industry," he said in an interview with IPE. Therefore, he wants to "highlight the industry's benefits for society as a whole". He points out: "We are not only providers of retail products - in fact our members manage over €1.8trn and only some €700bn of it are in retail funds." He wants to achieve a basis for "discussing pressing issues on an equal footing with the government and authorities".
For Richter, individual and occupational pensions are definitely the most pressing issue and therefore "strategic target number one" for the BVI.
"Retirement provision is the main growth driver in the industry", he explains and names two reasons: the first is demographic development. The other is the fear private investors have vis-à-vis direct investments because of the volatility especially in the equity markets.
His main demand is a level playing field for all providers in the whole financial industry. Looking specifically at the pension system he emphasises: "The asset management industry should be entitled to get direct access to clients in all areas of funded pensions".
"Basically, the industry has to manage the pension assets no matter whether this is via an insurance vehicle or a fund-based solution. So the BVI demands a level playing field in this business," Richter explains.
He is convinced that more competition will lead to higher participation rates in supplementary pensions, which Germany needs to cope with demographic challenges ahead.
As an example for successful competitiveness in the market he names the Riester-Rente, the state-subsidised individual supplementary pension scheme. "Providers marketed their products as they wanted to get a slice of the cake," Richter says.
In the area of third-pillar pensions, current regulation states that people who have paid into a life insurance for twelve years and withdraw money after they have turned 60 (this is soon to rise to 62) only have to pay half their personal tax rate on the revenue. The tax rate for top earners is 42%, so this would mean a top earner pays 21% for a life insurance policy sold after the age of 60 while they would have to pay 25% withholding tax for selling a fund or other savings product.
In occupational pension schemes Richter's predecessor, Stefan Seip, tried to introduce the concept of Direktfondsrente (direct fund contracts), an equivalent of the Direktversicherungen (direct insurance contracts), which is still the occupational pension solution favoured by smaller companies as they generate the least hassle for the employer.
Under German law employers are obliged to offer an occupational pension scheme by means of deferred compensation if demanded by the employees. Very often the company then chooses an insurance to offer individual contracts for members of staff.
BVI wants direct fund contracts to be allowed as an alternative to direct insurance contracts with each employee being able to choose which suits them best.
"We do not want to make the occupational pension system more complex than it already is," Richter says - and indeed, this is the main fear of many companies. Richter wants to offer an alternative to insurance-based products and confident that a new dialogue on old-age poverty and pensions, initiated by representatives of the government coalition, will yield results in this area.
Asked whether Germans were more cautious regarding funded products because of the financial crisis and the market volatility Richter says that it was now more important than ever to offer good long-term products. "Over the long term the volatility smoothes out again - we have statistical proof for that," he explains.
"But yes, there is a loss of confidence in the capital markets because of higher volatility but we have to re-establish the trust by offering good products with a good performance and an efficient risk management."
When it comes to pensions and investments BVI is also looking across the German borders. As one of the first national asset management associations BVI has opened an office in Brussels recently. "This presence in the political heart of the EU gives us the opportunity to use the know-how of the German fund sector more effectively and at an earlier stage in the European law-making process," says Richter.
He adds that this allows a "more intense communication" especially on areas that might be Germany-specific, such as the Spezialfonds, the main type of fund which offered for institutional clients only.
Another major issue according Richter is pension pooling. "While giving German asset managers the opportunity for pension pooling the industry gets the chance to attract significant fresh money," Richter points out. "Their clients will enjoy more efficient risk management tools as well as better reporting concerning the total portfolio under management".
The issue is currently discussed in working groups on a government level. Richter expects a decision by the end of this year or the beginning of 2012. "Pension pooling is the future and the only question is which vehicle in which country will be used - therefore time is limited," he explains.
At the moment only a few countries, like Belgium, Luxembourg and Ireland have pension pooling vehicles.
"In Germany, we need to create a new transparent investment vehicle which copes with the threat of double taxation," concludes Richter. "This is certainly not easy. But it is in the interest of the German government to keep pension assets in Germany to secure the competitiveness of the business location.