GERMANY – Germany’s old-age law that was passed by parliament in June has marked the ‘dawn of a new era’ for the pension market - according to HVB insurance analyst HVB Lucio di Geronimo.
The law - Alterseinkunftgesetz - makes annual employers’ contributions to supplementary or top-up pensions gradually tax-free until 2025, when they are expected to be tax-exempt.
Di Geronimo explained that the law has had a “major impact” on the pension system in Germany, not only because it makes pension contributions progressively tax-free but also because it has opened up the first pillar to private pension providers.
The Germans, the analyst reckons, will have to change their attitude towards their old-age provisions - learning to save for their pensions.
The demand for pension products, triggered by the government’s benefit-cutting programme and perks to encourage pension savings, has seen two pension providers reporting better than expected half-year profits recently.
Hannover-based insurance group AWD announced a “clearly higher than expected turnover”, up 17.5% or 307.6 million euros - with long-term capital-building and pension products representing 64%.
AWD chairman Carsten Maschmeyer said: “With the Alterseinkünftegesetz being passed, the demand for private and corporate pension provisions has clearly gone up.”
“The need for private provisions will sink even deeper in our client’s awareness, because pension gaps will get bigger,” he added.
AWD’s rival, Heidelberg-based independent insurer MLP-Konzern, made a total return up 26.7%, or 286 million euros. It also attributed the growth of its pension business in the first six months of the year to the law.
But insurance companies, which di Geronimo said have so far offered one-size-fits-all life insurance solutions, are not going to profit from the reform for much for much longer. Tax privileges for insurance deals are going to cease next year.
The pension market as a whole, however, was likely to record a slow raise in the immediate future as a result of the changes in the pensions system, with a ‘boom’ likely to happen towards the end of the decade.