Willis Towers Watson (WTW) has identified several targeted actions in order to increase the appetite for occupational pensions in Germany.
According to a recent report by the Federal Ministry of Labour and Social Affairs, the Alterssicherungsbericht 2020, the number of the people entitled to occupational pensions in Germany has in fact clearly lost momentum in recent years, increasing from 20.5 million in 2015 to 21.0 million in 2019.
Recent progress for occupational pensions shows the gap increasing during the period between 2001 and 2005, when the number of active insured rose from 14.6 million to 18.3 million. One important task for 2021, according to WTW, is to find “practicable” solutions to grant statutory subsidies for deferred compensations, it said.
With the law intended to support the development of occupational pensions, Betriebsrentenstärkungsgesetz (BRSG), the highest amount of tax-free contributions for deferred compensations has been increased from 4% to 8% of the annual gross wages used to define contributions to pay for the statutory social insurance.
Some aspects of the BRSG, such as subsidies for low earners, are “pragmatic and targeted” and are also widely used, said Michael Karst, head of legal, tax, accounting retirement at WTW.
The final stage marking the transition to the new regime is, however, planned only in 2022 for other aspects of the law, such as subsidies for deferred compensation, he said. Only at that point the subsidies will become mandatory for pension promises stemming from the time before the BRSG, he added.
Karst noted that pure defined contributions, or reine Beitragszusage, and opting-out solutions are still under discussion but rarely or not at all used due to the number of parties involved in the process and the complex regulatory framework.
“In the low-interest environment, a company pension without expensive guarantees is without a doubt an interesting option,” he said.
Low-risk pension plans, including capital market-oriented pension solutions, represent another option to up the appetite for company pension schemes.
For the companies, according to WTW, lowering the interest rate on direct promises and cutting regulatory requirements would contribute to the spread of occupational pension schemes.