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Germany plans boost to Pensionsfonds system

GERMANY - The German government intends to radically boost the competitiveness of Pensionsfonds, the equity-oriented corporate pensions vehicle created in 2001, according to a senior official in the social affairs ministry.

Pensionsfonds were Berlin’s answer to the Anglo-Saxon pension fund which has no restrictions on investments in equities. Germany’s traditional known as a Pensionskasse is barred by law from investing more than 35% in equities.

Pensionsfonds were intended to be an improvement on the Pensionskasse, which currently account for around €73bn of the €342bn in total German pension assets.

Yet three years later, Pensionsfonds have not been able to attract more than a fraction of German pension assets. German pension experts say this is mainly because the vehicle has not been able to lure assets away from the Direktzusage (book reserves) vehicle, which accounts for 60% of the total pension assets.

The problem, these experts say, lies with the Rechnungszins – a figure used in calculating how pension obligations can be met by a company. The higher the Rechnungszins, the lower the capital reserves a company must build to meet those obligations and vice versa.

The Rechnungszins for Direktzusage is 6%, while that for Pensionsfonds is 2.75%. Hence, there has been no incentive for companies using Direktzusage to transfer their assets to Pensionsfonds, as this would require the building of significant capital reserves.

Yet Peter Görgen, responsible for supplementary pension provision at the ministry, said that as part of its transposition of the EU pensions directive, the government was considering adjusting the Rechnungszins facilitate the transfer of assets from Direktzusagen to Pensionsfonds.

“The transposition will ultimately be done by lawmakers, but we in the government have no objection to adjusting the Rechnungszins, so we will make a recommendation to do so,” Görgen told IPE on the margins of a pensions conference in Berlin sponsored by the business daily Handelsblatt.

German experts say that if the recommendation is followed, it will give a huge boost to Pensionsfonds. They estimate that the new pensions vehicle could quickly attract up to 50% of the assets held by the Direktzusage vehicles.

The German government is likely to transpose the EU pensions directive in late September.

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