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Info boosts pensions over contributions - German study

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  • Info boosts pensions over contributions - German study

GERMANY  - More information rather than higher employer contributions is the key to increasing participation in a company pension scheme, according to a study by DIA, the German institute for retirement research backed by Deutsche Bank.

In its latest study looking at "Betriebliche Altersvorsorge" (occupational pensions), the DIA reviewed German occupational pension provision from a behavioural science approach.

The survey showed that additional employer contributions do seldom have the desired effect of increasing employee participation as some people then automatically cut their own monthly pension savings rate.

However, more information on occupational pensions as well as a company-wide agreement on the creation of a retirement scheme has led to higher participation rates.

The DIA also noted that models allowing members to opt-out of the company pension schem led to the same 85% participation rate in company schemes as mandatory systems would see.

Many German companies apply mandatory membership to their pension schemes. And evidence suggests opting-out is only used by less than 10% of the companies and by large firms only.

Some employers also have multiple schemes which are mandatory or not, depending on the type of scheme and entrants. So around 45% of employers use a mandatory system but the vast majority, over 70%, goes down the opting-in route.

It also found over one-third of German employees are part of an unfunded retirement scheme where the company keeps its pension assets on its balance sheet.

The next biggest group are those that are members of a Pensionskasse, while only around 5% are in a Pensionsfonds.

Elsewhere in Germany, civil servants have criticised a study by DIW, the German institute for economic research.

The institute argued German civil servants had the best pension arrangements as they did - for the most part - not have to contribute to their supplementary pension schemes. 

It also calculated that civil servants pensions, including first and second pillar, were worth approximately twice as much at retirement than the average employees.

But the civil servants union DBB has hit back by arguing civil servants rarely have a supplementary pension to fall back on, whereas many in the private sector do. Occupational pension schemes for civil servants are only just starting in Germany.

To justify the higher pensions pots held by civil servants, the DBB claimed the average civil servant was better educated than the average worker and therefore had higher salaries and that the jobless quota among civil servants was also lower which increased the pension average.

It was also noted that civil servants, unlike other employees, have to pay for some of their health costs themselves, and these costs usually increase after retirement.

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