WTW is calling for a radical revision to existing and proposed legislation in Germany, to create the right conditions to offer occupational pensions to a large share of employees in the country.
The existing legal framework on occupational pensions must be significantly improved to achieve economies of scale and efficiency, including on costs, according to WTW’s head of retirement Hanne Borst, and head of funding vehicles retirement at WTW Germany Michael Karst.
In this regard, the bill drafted by the German finance ministry and the ministry of labour and social affairs to revive occupational pensions is only a first step, they say, urging that further steps must follow, Borst and Karst wrote in an article on WTW’s website.
Borst and Karst cite the proposal included in the draft bill for auto-enrolment in companies through salary conversion, bypassing collective bargaining agreements, as an example of the urgency to change rules.
As it is, the opting-out model in the bill applies to “hardly [any] relevant area” in the German occupational pension landscape, they added.
Similarly, occupational pension association aba has warned that the scope of auto-enrolment rules put forward by the ministries is too narrow to have more than a limited positive effect.
WTW suggests a reworking of the proposal in the bill towards a comprehensive company-based opting-out concept, that is urgently required, the company says.
To promote occupational pension schemes, the legislation should offer the possibility of a general opting-out option without complex rules on the “standardisation of remuneration arrangements”, Borst and Karst added in the WTW article.
However, the introduction of an opting-out model still requires a clause for the conversion of the remuneration into occupational pension schemes.
For Borst and Karst, Germany needs a reform including both occupational and state-subsidised private pensions (Riester-Rente), with the pay-as-you-go system that will likely provide a basic amount of pensions going forward.
Like other stakeholders in the pension industry, WTW considers it is positive that the draft bill significantly changes the legal framework to offer defined contribution plans via social partner models.
“This offers advantages for both employers and employees. Employers benefit from reduced liability risks and lower administrative costs, while employees can benefit from an opportunity-oriented investment with potentially higher returns, without rigid guarantees,” Borst and Karst said.
Questions remain on the level of guarantees on the capital saved for pensions necessary to provide security while investing in capital markets.
“The level of guarantees required in occupational pension schemes outside the social partner model significantly reduce returns and do not necessarily offer additional security,” they noted.
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