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Germany rules out mandatory retirement saving

GERMANY – Heinrich Tiemann, deputy minister for labour and social affairs, has reaffirmed that the government has no plans to make retirement saving mandatory.

Speaking at a conference organised by Handelsblatt, he said that the Riester pension reforms of 2001 had prompted a dramatic rise in demand for second- and third-pillar pensions.

He also signalled that the government might not extend social tax exemptions for defined contribution schemes created by the reforms.

Tiemann said the exemptions had already served the purpose of boosting demand for corporate pensions in Germany.

“The exemptions were always intended to, initially, boost demand for corporate pensions in Germany. This has now been accomplished,” Tiemann said. He was referring to the fact that currently, around 60% of employees own some type of corporate pension against 38% at the beginning of 2002.

“Now, if the exemptions are removed from 2009, the government is still confident that corporate pensions in Germany face a bright future,” the minister told the conference in Berlin.

Leading pension experts like Professor Bert Rürup have called for mandatory retirement saving at the corporate level.

Rürup’s view is supported by colleague Axel Börsch-Supan, who has claimed that if the government does not make retirement saving obligatory in some way, up to 60% of German households would face a “pensions deficit”.

Tiemann cited previous statistics reflecting that 60% of employees owned a corporate pension and that 5.6m people had signed up for the tax-privileged private pension created by the Riester reforms. “In other words, the government sees no evidence that retirement saving has to be made obligatory,” Tiemann said.

“In addition, if we were to introduce the obligation, we would be creating more and not less bureaucracy and also be increasing costs on employers.”

Separately, Professor Rürup took issue with the notion that Germany’s state pension scheme faced a “demographic time bomb”.

“This description is completely inappropriate as it suggests that at some point things will blow up. No, the proper description is a glacier which is slowly melting,” Rürup told the conference.

Rürup warned that if the exemption were removed, the further spread of DC schemes in Germany “would be dealt a very heavy blow.”

Asked by IPE what the government’s motivation in axing the exemption could be, Rürup replied that it had to do with Germany’s state-run health care scheme, which was in need of revenue.

“But the last word on the exemption has not been spoken. In my view, it will be difficult for the government to axe the exemption and defy the wishes of Germany’s leading employers and unions,” he told IPE on the sidelines of the conference.

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