Germany to deregulate occupational pension funds

GERMANY - The German finance ministry has unveiled a draft law providing for sweeping de-regulation of the country’s two occupational pension funds, known as Pensionskassen and Pensionsfonds.

According to excerpts of the law made public this week, the pension funds will, for the first time ever, be permitted to operate anywhere in the EU.

The measure also removes traditional restrictions on how the funds invest their holdings. Under current law, Pensionskassen may only invest up to 35% of their holdings in equities.

Such a crucial change implies a re-evaluation of how Pensionskassen are regulated. Because they are treated like insurers by the German regulator BaFin, they must abide by the same investment restrictions, including the one on equities.

While the draft law gives German pension funds considerably more freedom, it also requires higher capital adequacy levels. Further detail on this issue was not disclosed.

Finally, by transposing last year’s EU pensions directive into German law, the measure permits EU occupational pension funds to operate in Germany. However, these funds will have to comply with existing German pension standards, including, for example, guaranteeing all retirement savings from workers.

Unveiling the draft law in Berlin, Barbara Hendricks, state secretary in the finance ministry, said it “marked a milestone in the creation of a single European financial market.”

Whether the measure takes effect in its current form depends on the parliamentary process. Hendricks said the draft law would be submitted to the federal cabinet for approval in mid-December and then to parliament early next year. Germany has until September 2005 to transpose the EU pensions directive into national law.

At last count, Pensionskassen accounted for around 72 billion euros of the estimated 350 billion in German pension assets. Pensionsfonds, which were launched at the start of 2002, make up only 147 million euros.

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