GERMANY – Former labour minister Walter Riester has urged the government to make self-employed workers eligible for the private pension product that bears his name.
Riester’s pension reforms of 2001 created a subsidised private pension for which 30m salaried employees are eligible.
For Germany’s 4m self-employed, the government in 2004 launched a private pension named after Professor Bert Rürup, yet support for it is less generous than for Riester.
“I’m a wholehearted supporter of making the self-employed eligible for the subsidised private pension. However, the finance ministry felt in 2001 that the pension should be seen as compensation for the shrinking state pension that salaried employees get,” Riester, an MP from the governing Social Democrats, told a press conference in Dresden on Saturday.
“The problem with this argument is that as the subsidies are funded by tax money, everyone, including the self-employed, who pays taxes should be entitled to the support,” he said.
“I’m just waiting for a self-employed person to take the government to the Constitutional Court over this unfair treatment. I think the person would have a strong case,” Riester told the conference, organised by Frankfurt asset manager Union Investment.
A key difference between Riester and Rürup is that under Riester, subsidies are provided to the savers and, if applicable, their families. Rürup provides support to only its savers.
Union Investment calculates that under Riester, the government pays more than 40% of a saver’s annual contributions to the pension. If he or she has a family, that support can total more than 60% of annual contributions.
Union is Germany’s leading provider of fund-type Riester pensions, with 700,000 contracts sold. All told, 6.2m Riester contracts have been sold, 11% of which are fund-type.
Riester also said he understood why the government might be reluctant to extend social tax exemptions under the defined contribution schemes his reforms created. German occupational pensions association Aba argues that the exemptions, due to expire in 2008, are critical to the further spread of the pension, especially at smaller firms.
”Considering the problems with funding of the national health care system, it’s no wonder that the government has to decide what subsidies are needed and what are not. My view is that whatever happens, corporate pensions have a bright future,” Riester said.
Riester could not be drawn on whether he backed the idea, promoted by Rürup, of making retirement saving on the corporate level semi-mandatory. “I’m still of two minds on the issue, so I can’t give you my position. However, I believe that in these times, we should not burden industry with more bureaucracy,” he said.
Separately, Union said institutional inflows during the first half were €1.1bn, bringing the total under management to €58bn. Of the €58bn in total assets, €16.4bn comes from clients that are not Union’s co-operative bank shareholders. Pension funds make up one-fifth of the €16.4bn.
Alexander Schindler, board member at Union responsible for institutional business, said that for the first time, the asset manager was winning a notable share of mandates – 15% –
via investment consultants.