German province to promote fund-based pensions
GERMANY - The German province of Hessen is aiming to increase the share of small and medium-sized enterprises in the second pillar by promoting fund-based pensions.
Under so-called Direktfondsrente, employers will offer their employees investment funds in which to invest individually, similarly to the Direktversicherung, where employers set up life insurance contracts for their staff.
This form of occupational pension provision - which will be the sixth form of second-pillar pension provision available in Germany - is now being promoted by the finance ministry of the German province of Hessen.
The equity exposure in the funds will start at 75% and start decreasing 10 years prior to retirement.
According to Hessen's finance ministry, the fund-based pension will increase product variety and competition in the market.
It will also strengthen the German stock market, it said, while offering SMEs an alternative with low administrative costs and "interesting" return opportunities.
However, the Direktfondsrente is not without critics, as the pension fund association aba has already expressed concerns that it will lead to more confusion among employees and more individualisation in the second pillar at lower benefit levels.
But the Hessen finance ministry said it hoped the federal government and the local governments in other provinces would "pick up the ball" and promote the Direktfondsrente themselves.
"Otherwise," it said, "Hessen will start to get active in parliament on the subject."