The German occupational pension system has overlooked its interest-rate risk sensitivity, a dependency that will force it to re-evaluate its approach to guarantees, according to Heribert Karch, chair of the country’s pension association.
Karch, chairman of the aba and chief executive at MetallRente, said that, following the collapse of Lehman Brothers, the German pensions sector was proud of how well it weathered the crisis.
“But we overlooked how sensitive to interest rates we were,” he told the aba’s annual conference in Berlin this week.
“Today, we still finance a greater number of countries than we do economies. This results in a interest rate dependency and a sensitivity to interest rates that forces us to re-think the dilemma of [low] returns and guaranteed [payments].”
Karch called for the industry to truly re-think the issue and not simply assume a defensive stance.
“If we can come to a sensible agreement, then I am not worried that we can ensure [income] security for employees.”
The chairman’s comments came shortly after the German government received two detailed reports on pension reform, examining possible tax incentives to boost participation and the role of collective bargaining agreements.
The respective ministries, for finance and social affairs, have offered tacit support for one of the main findings, proposing the use of an auto-enrolment system to boost participation rates.
However, aba and Karch warned against attempts to introduced a defined contribution-based system, without any guarantees, noting it would be a difficult reform to sell.
“The federal government must now look at the numerous reform proposals and settle on the right shape of reform.
“The aba stands ready to offer its assistance – both with the big picture and the detail.”