Germany’s occupational pensions industry has expressed disappointment with draft legislation to reform the second pillar pension system, calling for further changes to fully unlock the potential of company pensions.
The draft law, prepared by the finance ministry and the ministry of labour and social affairs, aims to extend occupational pensions in small and medium-sized enterprises (SMEs) via defined contribution (DC) schemes under the so-called social partner model, widen automatic enrolment, and allow occupational pension vehicles such as Pensionskassen and Pensionsfonds to diversify portfolios through more aggressive investment strategies.
Industry association aba welcomed the government’s plan to strengthen opting-out mechanisms at company level, but warned that the scope of the auto-enrolment provisions is too narrow to have more than a limited positive effect.
The bill requires employers to contribute an amount equal to 20% of the salary converted into pension savings under the opting-out framework – a provision aba said “requires improvements”.
The association is also urging changes to the social partner model, which currently allows DC plans only through collective bargaining agreements.
Aba criticised the lack of progress on tax incentives for employers offering occupational pensions to low earners, and voiced disappointment over what it sees as a missed opportunity to cut administrative burdens in the second pillar.
It has also called on the financial supervisory authority, BaFin, to carry out stress tests so pension funds can increase allocations to private markets under the new investment rules, and to implement measures to address underfunding.
The German insurance association GDV opposes the government’s plan to limit opting-out to companies without a collective bargaining agreement.
“As many companies as possible should be involved [in opting-out mechanisms], including those bound by collective agreements,” said GDV deputy chair Moritz Schumann.
While broadly supportive of the reform, GDV also criticised the fact that the new investment rules and provisions on underfunding would apply only to pension funds.
Similarly, the German Association of Actuaries (DAV) and its affiliated Institute of Pension Actuaries (IVS) back the draft bill, which they said contains “numerous, necessary improvements and sensible changes” to strengthen the legal framework for occupational pensions.
The actuaries welcomed the government’s partial acceptance of their proposals to limit the extraction of excess returns and transfer them to buffers for DC plans under social partner models. However, they regret that their suggestions to simplify the tax framework for these plans were ignored.
DAV and IVS argued that “much more extensive and far-reaching reforms” are needed, particularly to significantly expand DC provision.
Fidelity International, asset manager of the DC plan operated by Höchster Pensionskasse, was more critical, with head of occupational pensions Christof Quiring describing the reform as a step in the wrong direction.
“Auto-enrolment should be introduced, expensive guarantees [should be] eliminated across all three pillars of the pension system, and portability of occupational pension entitlements should be improved,” he said.
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