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German Bundesrat approves new pensions law

GERMANY – The Bundesrat upper house of the German parliament today (May 11) approved the centre-left government’s landmark pension reforms, paving the way for reform of the country’s overburdened social security system and the introduction of new private pension arrangements named ‘Pensionfonds’.

In an earlier attempt to pass the legislation in mid-February, the Christian Democrat party (CDU), which has a majority in the Bundesrat, opposed the reform.
This time around, following concerted lobbying from the government, those states (Länder) with coalition CDU and Social Democrat (SPD) representation in the upper house voted in favour of the motion.

The new law will reduce the state pension allowance from 70% to 67%, but allows workers to pay into the new private retirement ‘pensionfonds’.
To start with, contributions will be small – 1% of gross salary in 2002 – but the rate will rise by 0.5% per year until it reaches 4% in 2008.
The government believes that the reform will keep state pension contributions at bay until 2020 and hopes it will boost private retirement funds.

However, the Berlin based German life insurance association has threatened to take legal action against the German government if it presses ahead with the pensions reform package.

The association, which has already received backing from German insurance giant Allianz, claims that the proposed reforms discriminate against direct life insurance pension arrangements and could be constitutionally unlawful.

Nonetheless, under the new law ‘pensionfonds’ will be under insurance regulations rather than capital management laws, something that has caused consternation among international investment managers who are keen to get their hands on the assets.

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