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Germany allows pension funds 100% equity scope

GERMANY – Germany’s new pension fund industry has been given a significant boost by the announcement of the finance and labour ministries that the new funds will not now be restricted in their asset allocation policies.

But the lifting of the proposal to restrict the amount of equities that the new pension funds can carry in their portfolios does not apply to existing insurance retirement vehicles or the traditional Pensionskassen, stresses Alfred Ghodes, managing director of Buck Heissmann in Wiesbaden. “The changes to the draft legislation concerning asset allocation give added impetus to Germany’s fledgling pensions industry, but they are exclusive to this new investment animal,” he says.

He confirms that the original two options to restrict equity levels – either to a nominal 30% or by forcing providers to create secondary funds if their beneficiaries didn’t want them to invest 100% of their assets in equities – have been dropped, with no new options replacing them.

Ghodes says assessing the impact of the news is difficult.
“As it doesn’t apply to existing retirement provision vehicles, the impact is technically negligible, since the pension funds don’t exist yet,” he points out.

However, he suggests that lifting the restriction won’t mean a free for all on investment policies, since investment strategies still have to satisfy beneficiaries’ requirements and preferences and this is leading to a prudent man style principle being adopted by Germany’s new pension funds. Supervisors may be employed to check a fund’s exposure to high-risk assets.
“Investments still have to be made with the beneficiary in mind. What we are seeing is the development of a ‘supervised’ prudent man ethos in Germany. And it’s important to remember to view this amendment in the context of its impact on the industry as a whole rather than the level of an individual pension fund’s equity exposure,” Ghodes explains.

The amended legislation is set to be passed by January 1 next year, when the pensions reform in Germany comes into force.

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