German government to review investment rules for Pensionskassen

The German government will assess possible changes to rules relating to the Investment Ordinance and funding requirements for Pensionskassen as part of the second-pillar pension system reform, it said in its annual report on the state of the economy (Jahreswirtschaftsbericht 2024).

The review of investment rules and funding requirements would lead to a boosting of investments for Pensionskassen, which are tied to stringent rules to cover obligations at all times.

The government is currently drafting a law for “further development” of company pension schemes, to allow Pensionskassen to achieve higher returns through pension asset allocations, it added in the report.

The occupational pension association Aba and the German Institute of Pension Actuaries (IVS) have recommended, in discussions with the government, reform of the second-pillar pension system, to relax investment requirements, preparing the ground for boosting investments in real assets for Pensionskassen and Pensionsfonds.

The working group in charge of the second-pillar reform has proposed allowing Pensionskassen to experience underfunding for a certain period of time and under certain conditions, with the sponsoring company stepping in to close shortfalls.

Aba expects “small changes” to investment rules regarding underfunded Pensionskassen, in a possible reform of the second-pillar pension system, it said.

The government is looking to encourage institutional investors to invest more in private equity and infrastructure, as the country will need a massive amount of capital to transform the economy in the next few years.

It wants to mobilise an additional €30bn from private and public institutions by the end of 2030 to finance start-ups in the growth phase.

Providers of retirement provisions are particularly apt for long-term investments, due to their significantly longer-term and easier-to-plan liabilities, compared with banks, according to the report.

However, private equity funds and infrastructure funds are not widely used in Germany, the report added.

The German Council of Economic Experts, a body advising on economy policy, has suggested opening up a public fund investing mainly in equities – proposed for third-pillar private pensions – to occupational pensions.

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