Social partners take step into the future
Few European pension funds have made as much impact in a short space of time as MetallRente, the German industry-wide pension fund founded in 2001 by the labour union IG Metall and the employers’ association Gesamtmetall for employees of the metal and electrical industries.
Such has been the success of the fund that, following its creation, metal and electric workers were swiftly joined by employees in the wood and synthetic materials, textile and clothing and steel industries.
The judges of the 2003 IPE Awards recognised that Metallrente is a step towards the future in terms of a modern and effective collaboration between social partners (employers, unions and employees) on the sometimes divisive question of pensions. As one judge enthused: “Based on German legislative and labour law, the joint establishment (employee and employer) of pension provision is to be recognised and supported. The offering and multi-supplier structure (insurance pension and fund offering) is complex and deserves attention for its performance and industry contribution. The outsourcing concept for most of the administration, asset management and support functions of the Metallrente plan reflects modern and efficient structures and contexts.”
The management functions of Metallrente are carried out by a consortium of financial services providers who run its three different funding vehicles and operate the administration platform. The fund offers pension plans through three different funding vehicles: ‘Direktversicherung’, ‘Pensionskasse’ and ‘Pensionsfonds’.
The fund is supervised by an advisory board consisting of representatives from both the labour union and employers association. Additionally MetallRente has assigned consulting mandates to external independent advisers, namely one investment consultant and one pension consultant.
The fund’s investment agreements with its financial service providers regulates issues like the design of pension plans, investment policy (including ethical, social and ecological criteria), control on the part of the MetallRente GbR and its advisers and data protection for members.
The managing directors of MetallRente, Heribert Karch and Björn Schütt-Alpen, are aided by a small staff of professionals to oversee the development of MetallRente as a whole. All other functions are executed by the service providers. The whole administration of the fund is outsourced to an administration platform operated by Allianz Group. This includes the administration of employer and employee account databases, administration and custody of assets funds.
One feature of the fund that particularly impressed the judges was the attention the fund pays to risk management, as one judge noted: “A major new project within the new framework of German pension rules. Metallrente is also introducing new concepts of investment risk management.”
This is particularly apparent in the MetallRente Pension Fund (Pensionsfond), the latest addition to the field of German pension funding vehicles. Here, Metallrente employs an innovative stress testing concept that on a real-time basis calculates actual short-fall risks on the assets side and provides information about actual surplus/deficit of single plans.
Such attention to risk in the fund is a product of the scheme’s hybrid DB/DC nature, where the employer just makes contributions equal to a DC plan but additionally has to provide this DC-plan with a capital guarantee timed on the date of retirement. If the employer then chooses an external funding vehicle like the new type of German pension fund, this external funding vehicle will also provide a capital guarantee on the contributions for the point in time when the employee retires.
At the same time, the MetallRente Pension Fund has tried to optimise an investment concept that uses freedom of investment – maximising the future value to the point of retirement – while at the same time providing and always securing the capital guarantee.
Within this framework the fund has realised an investment concept that during the contribution phase allocates to three different premium reserve funds following a lifecycle concept. All employees under 55 contribute to the same collectively pooled premium reserve fund, allowing for the highest investment risk and accordingly the highest expected return. At the age of 55 invested amounts and contributions are shifted to a second premium reserve fund and from the age of 58 every half year 20% of the invested capital will be shifted to a third premium reserve fund that is investing with no or minor investment risk and thus securing the grown capital for retirement.
This innovative funded approach in a market with a continuing reliance on state pension provision was applauded by the judges: “A leading pension fund in Germany, in a country with a highly developed pay-as-you-go system and in comparison to the Netherlands, the UK and Switzerland a very small basis of pension funding. The management of Metallrente looks very sophisticated and deserves an appropriate ranking.”