Germany is missing an opportunity to introduce effective automatic enrolment rules, instead rolling out reforms that deter companies, protect the status quo and are unlikely to lift participation in occupational pensions, according to lawyers and consultants.
The occupational pension reform approved in December “severely restricts both legally and practically” auto-enrolment at company level, Hanne Borst, head of retirement Germany at WTW, told IPE.
The reform limits opting out through deferred compensation to sectors without collective bargaining agreements, effectively excluding companies employing the majority of workers.
“The widespread support [of such model] will be lukewarm. Companies are not against opting out – they are waiting for a model that is practical, legally sound, and applicable to everyone,” Borst said.
Companies recognise the potential of opting out to “significantly increase participation rates” in occupational pensions and employees’ retirement savings, she added.
Experience in other countries, such as the UK and New Zealand, shows that opt-out models can sharply boost participation in occupational pension schemes.
“This same momentum could also be generated in Germany if opting out were widely permitted,” Borst said.
The amended opt-out regulation is a “sham” because “it is not possible” for deferred compensation not to be agreed under collective bargaining agreements, said René Döring, partner at Linklaters.
Under the new rules, an opt-out negotiated outside collective bargaining agreements would also require higher employer contributions.
“An opportunity to easily promote occupational pension schemes was lost to protect the collective bargaining parties. I see no reason why company-level opt-out regulations were not generally permitted, if they cover salary components that are eligible for salary conversion and no mandatory collectively agreed opt-out provisions exist,” he added.
Unions’ role
Opt-out models have been legally possible since the First Company Pension Strengthening Act entered into force in 2018, but have failed to gain traction among companies covered by collective bargaining agreements, said Hansjörg Müllerleile, co-managing director of MetallRente, the pension scheme of social partners IG Metall and Gesamtmetall.
It remains unclear whether the latest reform will reverse that trend, he added.
Marco Arteaga, partner at law firm Luther Rechtsanwaltsgesellschaft, said unions remain opposed to auto-enrolment.
“Unions have the possibility to conclude auto-enrolment [agreements] since 2018, but have never done it. They don’t want auto-enrolment through deferred compensation,” he said.
According to Arteaga, unions reject auto-enrolment because it reduces social security contributions.
“We need auto-enrolment in the second pillar, and it is also good when the employer pays a little contribution,” he added.
Germany’s biggest union, IG Metall, said in a statement that it is still evaluating the second pillar reform approved in December and its consequences, and declined to comment on whether opt-out mechanisms would help expand occupational pensions.
