The next government under the leadership of Social Democrat Olaf Scholz will set up a fund for the capital funded part of the German pension system to invest savings globally, according to the coalition agreement presented to the public today by the Greens, the Free Democrats (FDP) and the Social Democrats (SPD).

The parties forming the so-called traffic light coalition – Greens, FDP and SPD – said in the agreement that the capital funded part of the future pension system will be “professionally managed as a permanent fund” by an independent body under public law and it will “invest globally”.

The pension system’s first pillar will therefore be reformed into a partially capital-funded system with the possibility to invest in capital markets, according to the agreement.

The plan mirrors the proposal of the Free Democrats of a Gesetzliche Aktienrente, or statutory equity pension, based on the Swedish model.

As a first step, the next government will deploy €10bn in capital from the public budget to the Deutsche Rentenversicherung, which manages the first pillar pension scheme, in 2022.

The Deutsche Rentenversicherung will then invest its reserves on the capital market, according to the agreement.

The coalition parties will simultaneously strengthen the pure pay-as-you-go part of the system with the inclusion of women, older employees and qualified immigrants.

Moreover, according to the agreement, the next government will work to reinforce company pension schemes, among other things, by allowing investments with higher returns.

The social partner model introduced with the law to reinforce company pensions – Betriebsrentenstärkungsgesetz – “must now be implemented”, according to agreement.

The traffic-light coalition will also “fundamentally reform” the private pension system. It will assess the possibility to set up a public fund offering “inexpensive” products with the option of opting out, it said.

Additionally, the next government will examine the possibility of legally offering private investment products with higher returns than the Riester-Rente. Subsidies would provide incentives for people with lower income to sign up for these new private pension products.

The minimum level of pension will remain at 48% of the average wage and the contribution rate will not rise above 20%. The coalition parties will avoid pension cuts and lifting the statutory retirement age, it said in the agreement.

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