Second pillar reform falls short of expectations, says aba

The review of the bill drafted by the German government to reform second-pillar pensions is a step in the right direction but has fallen short of the expectations of German occupational pension association aba,

Aba considers necessary improvements to the part of the bill relating to severance payments, and to reduce bureaucracy in the second pillar pension system, it said in a statement.

Yesterday, the cabinet approved the draft of the second law to strengthen company pensions – Betriebsrentenstärkungsgesetz II – after the one that came into force in 2018.

Germany intends to “further expand company pension schemes” for an increasing number of employees, especially low earners, and those working in small and medium-sized companies, the Ministry of Labour and Social Affairs (BMAS) said.

The aim of the government is not only to strengthen, but also, more broadly, to anchor company pensions to the first pillar statutory pensions, it added.

The changes drafted in the law to the second pillar pension system can give company pension schemes a much needed jump start, especially for a social partner model providing defined contribution (DC) plans, aba’s chair Georg Thurnes said.

However, he added that “the revisions to the draft bill fall short of our expectations”, with opportunities missed by the government to tackle red tape.

The bill passed by the government opens up the social partner model to companies not bound by collective bargaining agreements, often smaller, easing up the possibility of introducing opting-out for deferred compensations at company level.

Pensionskassen can agree on higher payments in the event of early withdrawal of benefits, according to the bill. Regulations are tweaked to allow Pensionskassen to channel assets in infrastructure and to experience underfunding for investments.

Changing the funding and investment regulations of pension funds is a “positive and effective” step, said Thurnes.

The second pillar bill increases the limits for severance payments if the amount is paid into the first pillar system and with the consent of employees.

Aba welcomes the fact that the Normenkontrollrat – the National Regulatory Council advising the government and legislators – recommends in its statement in the annex to the draft law to examine the possibility of increasing the threshold for severance payments for people entitled to a small amount of pensions, without approval, from the previous 1% to 2%.

Severance payments with employee consent should be possible for pensions that would amount to up to 4% of the monthly reference amount to calculate contributions, said Thurnes.

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