When the occupational savings accounts concept was first raised at Volkswagen in 1998 the idea was to use overtime (zeit-wert) accounts to smooth production and adjust human resources
capacity by transferring overtime to the future and using the created time budget accordingly. Employers at that time focused especially on early retirement for their employees.

The idea to link traditional overtime accounts with a financial perspective moved the 'time value' concept forward where time is literally money and can be invested to create even more value. This gave birth to occupational savings accounts as we know them today. But the term 'overtime accounts' does not reflect the real nature of occupational savings accounts, as this is just one of their features.

Occupational savings accounts complement the existing three pillars of state, occupational and personal savings and are an ideal building block to introduce flexibility to the existing occupational pension vehicles, the betriebliche Altersversorgung (bAV), whose common denominator is tax-deferred savings with a fixed retirement date in mind.

Unlike existing bAV vehicles, occupational savings accounts can be used to address other milestones in an employee's life apart from retirement and increasing their potential to generate future wealth, and therefore are important to the medium to long-term strategies of corporates. They allow tax-deferred savings for parental leave or sabbaticals that may be used for retraining or life-long learning. They also allow employees to enter part-time work or to take early retirement.

When leaving a company, the money saved can be paid out or can be transferred to a new employer's occupational savings account structure if it is similar. Employees save overtime, bonuses, the monetary equivalent of remaining holidays and salary components, and ideally use the time value to invest in mutual funds or related investment portfolios.

To understand the importance of occupational savings accounts one should bear in mind the structural changes in the German market for occupational pension provision. The traditional bank- and insurance-dominated market, which is characterised by insurance solutions and defined benefit (DB) schemes, is moving towards investment solutions and defined contributions (DC) schemes where specialised and/or independent asset managers are gradually gaining in importance. One could compare it to the situation in the US where, with the advent of 401k and IRA accounts 16 years ago, the market pension business grew from AUM of $300bn (€233bn) to roughly $12 trn today, with 70% of mutual funds investors in the US using investment based, mutual fund solutions through pension vehicles.

At that time independent asset managers such as Fidelity benefited from the changes in the US market and gained a dominant role. As part of a comprehensive European and global DC strategy, Fidelity Germany is focusing its resources on this promising area among others to get a solid slice of a growing pie.

Over the past two years local insurance companies, asset managers, occupational pension consultants and system providers have grasped the concept of occupational savings accounts and started to offer a variety of services based either on proprietary structures or an open architecture.

Erik Crawford is at Mercer Investment Consulting, which has been involved in the establishment of several occupational savings accounts programmes, building the required structure and selecting asset managers and fund vehicles. He highlights the fact that DC-based investment solutions will certainly gain importance and refers to cultural aspects such as the risk aversion of German investors who, having grown up with insurance products, have been slow to adapt to investment solutions. However, that will change in the future, he adds.

According to BodeHewitt board member Georg Thurnes, the "breathing factory" concept developed by Volkswagen was supposed to introduce the flexibility to better address individual cycles within the organisation. Thurnes's impression is that Peter Hartz, a former board member at Volkswagen and adviser to the German government on employment market reform, was ahead of his time in promoting this idea. The focus among corporates at that time was on early retirement rather than using the opportunities that occupational savings accounts offer to address different milestones.

Thurnes is convinced that the original employer interest in an early retirement option will become an employee interest in the future. He refers to the extension of working life through an increase in the retirement age, which the government wants to raise to 67, while the possibility of lower state pensions has also contributed to this shift.

BodeHewitt's German operation was involved in setting up the concept with VW and thus has been the early mover in this area. In addition, it is currently considering moving in to the asset manager selection business.

Asset managers positioning themselves to take advantage of the local occupational savings accounts business include Allianz Global Investors, AMB Generali IM, DEAM/DWS, Deka, Fidelity, Metzler, Siemens Financial Services and Union Investment, while even traditional Master KAGs such as Universal intend to follow suit.

According to Anke Limbach, head of client relationship at Fidelity Germany's newly created pension solutions business, occupational savings accounts are complementary to existing DB schemes and other occupational pension vehicles So the discussion should not be one of either/or. Fidelity's experience is that innovative corporates offer their employees a variety of instruments that make use of different tax advantages and serve different needs.

Limbach is also opting for a new language when it comes to retirement. Fidelity research has found a tendency to associate retirement with death, saving with not enjoying, security with illusion, life with uncertainty and planning with headache.

Limbach is promoting what she calls the concept of active ageing. Since today's employees represent the older, not old, people of tomorrow and in light of expected demographic changes, their potential will have a crucial effect on the competitiveness of corporations and economies.

Occupational savings accounts can assist corporations to retrain employees, integrate older people and offer part-time solutions in later life to make fuller use of valuable human resources. Companies can differentiate themselves by offering such vehicles and use occupational savings accounts to create the financial basis to enable employees to achieve their individual milestones.

According to Limbach, international studies show that human capacity - that is, the potential to generate wealth through an active working life - makes up over 60% of wealth after retirement. Therefore, a proactive corporate strategy to increase this potential is valued by employees.

A poll of a dozen German corporates found that while many were aware of overtime accounts hardly any of them were knowledgeable about occupational savings accounts. One particular barrier they saw was that complexity could hinder the diffusion of occupational savings accounts among corporates. This
view may also have to do with the relative novelty of the occupational savings account concept. However, in reality it is not more complex than a DC-type pension plan (beitragsorientierte Direktzusage), which is growing in popularity with German corporates.

The poll also found that regardless of whether they were looking for a pension or occupational savings account-type concept, corporates want a peace-of-mind package from a service provider. However, this requires a long-term commitment and substantial investments, and in an environment that is traditionally driven by quarterly or annual results makes the list of companies ready to enter into this business fairly short.

Costs should be transparent and contain no surprises, with the employer totally in control of costs upfront, no additional costs charged apart from those agreed.

It also discovered that a real open architecture is still not present since corporate Germany is very much driven by existing relationships and interdependencies. However, this will certainly change as transparency increases.

Among the outstanding issues is the lack of a standardised, industry-wide approach that might lead to separate tax authorities treating occupational savings accounts in different ways. However, legal certainty can be expected to increase as more corporates introduce them.

Murat Ünal is chief executive officer at Frankfurt-based consultancy Funds at Work