German workplace pensions ‘must double to cover pension gap’
Contributions to German occupational pension plans fail to cover the pension gap arising from cuts to the country’s state pension, according to Willis Towers Watson.
In a study of 200 larger companies with pension plans, Willis Towers Watson found that benefits were insufficient to make up for falling payout-levels from the first pillar.
“To completely fulfill its socio-political role as the second pillar of the retirement provision, contributions to occupational pension plans would have to be doubled,” said Heinke Conrads, head of retirement for Germany and Austria at Willis Towers Watson.
She added that this burden could not be carried by the employers alone. Instead, employees would have to start paying more into their pension plans as well.
Currently, only around 45% of companies surveyed said employee contributions were a prerequisite alongside employer contributions.
According to the study, the median payout from an occupational pension plan for an employee after 42 years of working was 4.6% of the last basic income before retirement.
The percentage varies from industry to industry and on average it is higher in larger companies, the analysts noted.
The study only covered companies with a pension plan and more than 500 employees. Many smaller and medium-sized companies do not have an occupational pension offering, which would bring down the overall average.
BRSG to the rescue?
Like many consultants, Willis Towers Watson is cautiously optimistic that the new legal framework, the Betriebsrentenstärkungsgesetz (BRSG), will improve participation in occupational pension plans.
Apart from introducing new industry-wide pension plans without payout guarantees, subsidies for SMEs, and pension plans for people with lower income, there are also incentives for employees to contribute to their plans.
“The BRSG is also addressing the issue of the currently rather reluctant motivation of employees to participate in financing an occupational pension plan by providing a legal framework for opting-out models,” Willis Towers Watson said.
“It remains to be seen whether the measures will noticeably increase the level of payouts from the second pillar,” added Wilhelm-Friedrich Puschinski, the firm’s head of general consulting.
Yesterday, two consortiums presented the first vehicles for new defined contribution pension plans under the BRSG. Union Investment and R+V insurers want to offer solutions in their joint R+V Pensionsfonds.
The insurer consortium Das Rentenwerk, on the other hand, wants to use an insurance-based vehicle (Direktversicherung).
It is up to each industry to negotiate whether or not to introduce the new pension plans, and if so which vehicle to use.