German bank Metzler is preparing to enter Germany’s emerging pension buyout market with a fee-based model, differentiating itself from providers offering de-risking solutions through pension corporations (Rentnergesellschaften).
Metzler Pension Management, the bank’s asset management division, is developing a pension buyout solution designed to provide the “necessary services, reports, and vehicles” through its existing occupational pension de-risking platform, Christian Remke, chair of the board of directors at Metzler Pension Management, told IPE.
“We plan to offer a concept that is both compelling and solution-oriented—and that fully takes into account the needs of all stakeholders, ideally before the end of this year,” he added.
Metzler’s model will be based on service fees that are independent of investment performance, particularly where the investment strategy is not aligned with pension liabilities.
“Fees would follow Metzler Pension Management’s standard cost structure for services. We plan to establish fluctuation reserves; there are currently no plans to allow for the withdrawal of surpluses or excess returns,” Remke said.
The fee-based approach, under which employers provide full funding, is one of the two dominant models emerging in Germany’s pension buyout market. The other involves buyout firms deploying their own capital through pension corporations to assume pension liabilities.
Vedra Pension, Funding Solutions Deutschland and Deutsche Betriebsrenten Holding are among the firms using pension corporations to offer full de-risking solutions.
In-house asset management
Metzler’s buyout solution will draw on the capabilities of Metzler Asset Management, which will provide investment strategies forming “a key part” of the overall proposition, Remke said.
The asset management business will also support the implementation of a fully integrated buyout platform.
The bank expects “growing business potential for asset managers” in Germany’s pension buyout market, according to Remke.
Asset managers are already seeking to establish positions in the growing market.
Allianz Global Investors works with Deutsche Betriebsrenten Holding, while BlackRock provides outsourced chief investment officer (OCIO) services to Funding Solutions Deutschland.
Lampe Asset Management, the institutional asset management arm of Hauck Aufhäuser Lampe Bank, has also entered into a strategic partnership with Vedra Pension to manage its liquid assets.
Market potential
Metzler Pension Management is positioning itself as a full-service provider for funded occupational pension schemes, covering services ranging from implementing new contribution models to funding existing pension obligations.
Its planned buyout platform will complement existing de-risking vehicles, including contractual trust arrangements (CTAs) and Pensionsfonds, alongside administration, reporting and investment management services.
Initial discussions with corporate clients suggest interest in pension buyouts, although “there is often scepticism regarding existing offers”, Remke said.
“Furthermore, the use of pension buyouts has frequently been limited to specific corporate scenarios. It is difficult to make a definitive statement regarding market potential; in our assessment, while potential does exist, it is lower than is often claimed,” he added.
Germany’s occupational pension liabilities total around €730bn, according to figures published by occupational pensions association aba.
