MAN turns pensions into savings plan
GERMANY - The transport engineering group MAN has created a new retirement provision plan, eliminating all longevity risks.
MAN found that an earlier plan, under which employees had been obliged to accept an insurance-based pension scheme to receive employer contributions, was not as well accepted as hoped.
"One third of our then 27,000 employees just did not fulfil the conditions, among those were mostly those with lower incomes and young people," Jürgen Dahmen, managing director of MAN Human Resources Services, told delegates at the annual conference of the German pension fund association Aba in Bonn today.
As an alternative, MAN created a new scheme known as MEV, the MAN profit share and provision plan, in which all employees were combined.
There are no guarantees on returns and no pension promises, the money can only be paid out as capital at retirement, either as one bulk payment or in up to ten instalments.
"This way we got rid of the longevity risk and also cut other risks to the legal minimum in Germany - more was not possible but future developments might change this," Dahmen pointed out.
He admitted that the group had wanted to implement a pure DC scheme but under German regulations a retirement provision scheme has to offer a guarantee on paid contributions.
Employees with older contracts who had been promised a pension payment were transferred to the new scheme and kept these DB elements.
"The case of MAN shows that companies do not have any legal incentives to continue offering pension payments," Bernhard Wiesner, head of pensions at the German Bosch company and board member at Aba, pointed out.
"The legislator has recently poured all its creativity into the individualised third pillar but we need it in the second pillar as incentives for employers have to be created to set up pension schemes," he added.
Another delegate told IPE that in Germany the problem of old pension promises was the most prominent as it was very difficult to get rid of them and these liabilities sometimes discourage companies from setting up schemes for new employees.
Dahmen pointed out that the new MAN pension scheme offered more opportunities for employees to make their own contributions to the scheme and up to double their pension provision.
Investments in the new scheme are the same for all employees and the equity allocation is reduced from 50% in a life-cycle model towards 0% as the member moves towards retirement.
MAN is managing the investments itself and Towers Watson advised the company.