Corporate pension schemes in Germany are still far from playing a decisive role in securing a certain standard of living for a large share of employees retiring, leaving room for improvement in the second pillar pension system to supplement statutory and private benefits.

Less than half (48%) of employees subject to social insurance contributions have not signed up for a company pension plan, as of 2023, according to a reply by the government to a parliamentary inquiry of the far-right party Alternative for Germany (AfD).

The government said in its reply that the take-up of occupational pension plans among low earners was “unsatisfactory”. Also, small companies’ occupational pension plans are not widely spread, with hurdles hindering a stronger take-up that became visible in recent years, the reply added.

New incentives are necessary so that company pensions become an integral part of employees’ retirement provision in as many companies as possible, it continued.

The second pillar reform drafted by the government touched on some of the issues hindering the take up of occupational pensions among employees, but discussions ended after the traffic light coalition of Social Democrats (SPD), Greens and the liberal party (FDP) collapsed last November.

The draft law to reform the second pillar pension system paved the way for spreading defined contribution (DC) plans under the so-called social partner model agreed by employer and employee representatives.

Social partner models cut guarantees on capital saved, and invested, promising higher returns without liability for employers. Only four social partner models have started so far,  one in the energy industry, one in the banking industry and two in the chemical industry.

Collective bargaining parties are currently planning, or have already decided, to join existing agreements, the government said.

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