Low Riester take-up may mean compulsory pensions
GERMANY – People may find themselves obliged to take out personal pension cover if the take-up rate of private Riester pensions doesn’t improve soon, warns Deutsche Bank Research (DB) in Frankfurt.
DB says unless urgent reforms are introduced soon, the private Riester pensions are likely to remain a “flop”, with 72% of the German public expressing no interest in this form of retirement provision.
DB says the possibility of mandatory personal cover being introduced was particularly likely if the SPD, the German socialist party, were included in the new government. Germany goes to the polls for a general election this Autumn.
DB believes, echoing the view of many other industry players recently, that the failure is the result of restrictive product design, an overly-complex infrastructure and complicated incentive rules.
“Early warnings from the banks and other industry players that the personal Riester schemes are overregulated and complicated are proving to be justified,” says a spokesman for DB.
According to DB, only two million new insurance contracts – insurance companies traditionally play a large part in retirement provision in Germany - have been signed since the Riester reforms were implemented at the beginning of the year.
DB says this may seem a lot at first glance but the insurance industry as a whole was expecting eight million new contracts this year and the reforms cover 31 million people in total.
However, the report says the outlook for the new occupational arrangements remains optimistic but the market for company pensions was beginning to be divided up among the new retirement vehicles, especially the new Pensionsfonds, new style Pensionskassen and direct insurance products, where there is fierce competition.
DB says the new pension funds could claim a market share of as much as €70bn by 2009. Moreover, as the new occupational pensions industry takes off, billions of euros could be transferred to the new funds from the book reserves, the traditional pay-as-you-go funds that are paid for by the employer and government.
However, DB believes the new occupational plans need some tweaking and the introduction of a less complex accounting system for the new pensions schemes, similar to the 401k principles in the US, would work in the interests of both employer and employee.