The German-speaking countries of Europe, despite having very different pension systems, still face a similar problem – how to explain why people’s pensions might not be what they expected.
At this year’s IPE Conference in Berlin, representatives from the pensions industries in Germany, Austria and Switzerland updated delegates on the latest debate issues in their respective countries.
Heribert Karch, managing director at Germany’s MetallRente and chairman of the aba pension fund association, said his country was at a very important point of its ongoing debate.
“It is the last remaining chance to enter into a new world in which occupational pensions is no longer just a benefit offered by employers but a part of an integrated social policy,” he said.
The government’s current draft allows social partners to set up pension plans without guarantees.
“The draft is extremely good work by the ministry,” Karch said.
“This way, social partners – the so-called Tarifparteien – can do something for the companies, ridding them of the financial burden of top-up payments, and they can do something for the unions, offering them a say in how pension plans are set up.”
“But what some people in Germany do not want to see is that this needs to be done without guarantees, to offer pension vehicles a wider choice of investments.”
Christian Böhm, managing director of the Austrian APK pension fund, said low interest rates could damage the reputation of funded pensions in Austria even further.
“The current interest-rate environment could jeopardise the momentum we already had in convincing people about the necessity of second-pillar pension savings,” he said.
He pointed out, however, that replacement rates from the first pillar continued to shrink from each generation to the next and that only 25% of employees in Austria were now covered by a second-pillar pension fund.
He added that some of the contribution rates were “very inadequate”, especially in the public sector, where saving into a second-pillar scheme is mandatory.
“A 0.75% contribution rate is rather pitiful,” Böhm said. “Only companies that see pension funds as a competitive advantage are paying appropriate contributions.”
Ueli Mettler, a partner at Swiss researcher c-alm, said the Swiss get an equivalent of 60% of their final salary via the second pillar and just 20% via the first.
But while almost all pension plans have been switched from defined benefit models to something similar to defined contribution, there is still a level of guarantee in the system in the form of the conversion rate, he said.
This is applied to the accrued assets and has to be guaranteed for life.
Under the new AV2020 reform proposal, this rate is to be cut from 6.8% to 6%.
“A consensus can be reached on this part of the proposal and on the slight increase of the retirement age to 65 for both male and female employees,” Mettler said.
“But the real debate is now around the compensation for these cuts in the second pillar and whether there should be a general top-up on first-pillar pensions.”