Making a smooth transition to a new pension market
The Riester reforms continue to dominate the German pensions landscape and the Heidelberg-based German occupational pension fund association, Arbeitsgemeinschaft fuer Betriebliche Altersversorgung (ABA), says its main role now is to ensure a continued smooth transition to the new market, good communication and education of pension fund members and to get ready for the next phase of the reforms.
“We have just seen a report submitted to the government by a specially commissioned think-tank in which we participated that is designed to safeguard social security, pensions and retirement insurance as well as healthcare for future retirees. The Riester reforms presented a radical shake-up of the German retirement provision market and a major challenge. Some areas still need to be clarified or simplified, and that’s why the think-tank was necessary,” explains Klaus Stiefermann, ABA’s general manager.
Stiefermann says one stumbling block to further progress is confusion at employee level. “They recognise the need for change and realise the days when the state simply paid out are gone, but feel they haven’t been properly informed. The fact that implementation of the reforms coincided with an election year, with the different parties making all kinds of promises since pensions were high on the agenda, didn’t help. It is a prolonged transition period and we are only now seeing the true results. The reforms are a great step forward but at a political level, there leaves a lot to be desired. These are areas where ABA will get significantly involved.”
One area ABA is keen to lobby is taxation of pensions, since it supports proposals to finance occupational schemes from gross income, with tax being paid on contributions during retirement.
“We believe a policy of favourable tax breaks and benefits is a great incentive to encourage people to save more,” says Stiefermann. “This is something the Rürup paper emphasises, so hopefully the government will listen. Rürup believes occupational schemes should remain the main form of retirement provision but the tax system will need to change to ensure that they do.”
Moreover, he stresses that too much time and effort is going into the administration of the plans. “We think the reforms could be significantly simplified and the frame-work surrounding the reforms needs to be modified accordingly. The reforms need a sense of clarity and stability to be successful and we are promoting discussions with the government to this end.”
Nonetheless, part of ABA’s work has been to collect and collate data on the new pension vehicles to determine the shape the occupational pensions market is taking. “The first true statistics are now available on the new pension vehicles and they are very encouraging,” Stiefermann says. The latest statistics show that up to March this year, some 300,000 people had signed up for a new capitalised occupational pension fund whilst the number of people in Pensionskassen, most of which have also been converted to a capitalised system, has increased from 770,000 to 1.7m. “We shouldn’t forget the vast majority of the new vehicles weren’t up and running until the second half of 2002. Moreover, in 2001 only every third worker in the private sector was covered by an occupational scheme, a figure that now stands at over 40%. The next round of collective bargaining agreements is due in December and we are keen to see what further progress will be made then,” Stiefermann points out.
But ABA’s involvement doesn’t end there. Stiefermann adds that the association is still very active in educating and informing the public about the reforms and liaising with the press and journalists about what is happening. “We are very pleased but not complacent. There is still a lot to be done,” he says.