The German Institute of Pension Actuaries (IVS), a branch of the Association of Actuaries (DAV), is calling for a redefinition of a new level of guarantees for occupational pension schemes with defined contribution (DC) options and minimum benefits (BZML), as well as state-subsidised products such as the Riester-Rente.
In the publication Aktuar Aktuell, the IVS underlined that a new level of guarantees should fall below the amount of paid contributions.
Pure DC-type plans already offer an option to waive guarantees, but collective bargaining agreements between employers and employee representatives, which create these forms of schemes, have hardly been put in place, IVS said.
With the pure DC schemes, introduced through the Betriebsrentenstärkungsgesetz (BRSG) – a German tax and social law reform package put in place 1 January 2018 – employees may not receive guarantees but are entitled to an additional contribution from their employer as a safety net.
Pure DC plans offer “almost the only” opportunity of “gain” in a low interest rate environment, which will last for “the coming years, if not decades”, it said.
Under these circumstances, a guaranteed adjustment to inflation with classic investment products is actuarially not viable.
IVS also highlighted the link between a minimum level of a company pension promises, supervisory requirements, and low interest rates, noting that those are “no longer compatible”.
The only viable option to make company pension schemes attractive for employers and at the same time provide a “substantial contribution” to cover pensions for employees is to break the “incongruence” between collective agreement and supervisory rules, it said.
To relax restrictive supervisory laws, and give pension providers more freedom, a “significant decrease” of guarantee requirements is necessary, the institute said.
Employees bear the risks that the total benefit may ultimately be lower than the paid contributions.
The risk, however, can be reduced significantly through “professionally managed capital investment” by institutions for company pension schemes and life insurers.
This framework may prevent capital market fluctuations from impacting individual pension accounts and in turn lead to permanent losses shortly before retirement, the IVS said.