Germany’s finance ministry and the ministry of labour and social affairs have drafted legislation to revive occupational pensions, continuing efforts initiated during the previous legislative period.
According to the draft law, seen by IPE, small and medium-sized enterprises (SMEs) would be able to participate in existing defined contribution (DC) plans set up under the so-called social partner model – first introduced in 2018 and backed jointly by employer and employee representatives.
The draft also proposes expanding the use of automatic enrolment with salary conversion into occupational pension plans at company level. This would be permitted without the need for a collective bargaining agreement – currently a legal requirement – on the condition that employers make a “significant financial contribution”, according to the text.
Both proposals – the expansion of auto-enrolment and broader access to DC plans – aim to increase participation in second pillar pension provision.
The share of employees subject to social security contributions and participating in occupational pension arrangements has declined from 53.5% to 52%, even as the overall employment rate has risen, the ministries noted in the draft.
“There is still considerable potential for the expansion of company pension schemes, especially in smaller companies and among low earners. Further measures are therefore necessary,” the ministries stated.
Alongside support for DC models and auto-enrolment, the draft law includes provisions to give pension vehicles greater investment flexibility.
Under the proposals, Pensionskassen – one of Germany’s occupational pension vehicles – would be allowed to operate temporarily in an underfunded state in order to pursue higher-return investment strategies within regulatory boundaries.
Within social partner models, pension funds would also be permitted to build stronger buffers. According to the draft, this would allow for more growth-oriented investment strategies without significantly increasing payout volatility.
The legislation is expected to be approved by the federal government in September and passed by the Bundestag later this year, IPE understands.
The draft marks a renewed effort by the current coalition – comprising the Social Democratic Party (SPD) and the centre-right Union alliance of the Christian Democratic Union (CDU) and the Christian Social Union (CSU) – to complete the reform of the second pillar.
Last year, a similar proposal backed by the SPD, Greens and liberal Free Democratic Party (FDP) failed to pass through Parliament after the coalition collapsed.
Germany’s pensions industry has been calling for reform of the second pillar, including wider application of automatic enrolment, to reinvigorate growth in occupational pension coverage.
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