The waves sent out by the latest pensions reform in Germany have left one island of old-age financial provision untouched. But though the Riester reform has passed Germany’s professional pension schemes by, the storms of the stock market have left its investment managers in a spin.
The professional pension schemes in Germany – Berufsstaendsicher Versorgungseinrichtungen – are special schemes that guarantee the obligatory provision for old-age, invalidity and survivors’ pensions for professionals. They are organised by the professional associations of doctors, pharmacists, architects, lawyers, tax advisers and/or tax agents, auditors, vets and dentists. For the most part, they are locally based, with separate schemes for each state.
These schemes are only open for members of the specific professions – whether employed or self-employed. No one outside that field can join.
As things stand, the Riester reforms do not affect the professional pension schemes at all. While this means there is no new administrative hassle for the professional bodies to deal with, it also means some members feel they are missing out on a tax break.
Members of these schemes are unable to benefit from the provision under the Riester reform which gives employees the right to defer pay up to 4% of the social security ceiling, to be contributed pre-tax to an occupational pension scheme. Some of the country’s professionals are not happy about this.
“The German members of the professional pension schemes would be glad if they could get the money provided by the Riester pension,” says Hans Wilhelm Korfmacher, managing director of the Professional Pension Scheme of German Auditors (WPV), which covers 15 of Germany’s 16 states.
The Cologne-based professional pensions organisation ABV has been arguing the members’ case with German politicians. “The problems is that everyone in Germany benefits from this Riester pension except the professions – pharmacists, architects, lawyers etc,” says Michael Prossliner of the ABV. “We think this is unfair.”
However, the government counters the ABV argument, saying that as part of last year’s broad pensions reform, the professional pension schemes were able to avoid some of the restrictions that were placed on other types of old-age provision. Because of this, says Prossliner, the government now says there is no need for these schemes to benefit from the Riester reform.
But despite its public efforts, the ABV admits it sees little chance that it will succeed in convincing politicians to allow the professional schemes to be included in the Riester benefits.
While unaffected by the Riester reform, Germany’s professional pension schemes are preoccupied with investment issues. The poor fortunes of stock markets around the world over the past two years have worried pension fund managers in the sector and forced them to question the wisdom of increasing their long-term equity allocations.
“The bad news is that if you have equities, you might be in a very bad situation now,” says the managing director of the pension fund run by one German professional organisation.
Most of the pension schemes run by professional organisations in Germany are in the process of a big shift in investment strategy. Traditionally heavily weighted in bonds – particularly German government stock – the funds are gradually changing their asset allocation in favour of equities which over the long term have proved better growth generators than bonds.
But the ill fortunes of world stock markets over the past two years has in some cases put a halt to this strategy sea change.
“Many of the professional pension schemes and insurance firms decided to hold more stocks in the 1990s,” says Korfmacher. “Now many of these pension schemes have seen that volatility of the stock market is very high, and they lost a lot of money last year.”
Korfmacher says that despite recent experience, he does believe stocks will be a necessary asset class in the future. But the problem is, he says, all companies and professional pension schemes only have limited risk money. “All the schemes are discussing almost daily – can we risk having more money in stocks over the next few years?”
For the time being, says Korfmacher, WPV has decided not to invest any more of its funds in the stock market until the direction of the market as a whole becomes clearer, although it will not sell off any of its existing equity allocation.
Thomas Ahl, managing director of the Versorgungseinrichtung of the Trier Bezirksarztekammer, says his organisation is taking the same approach. “At the moment, we are neutral; we are not reducing our holdings of_equities but neither are we increasing them.”
Even if stock market developments are favourable later this year, the fund will still not be adding to its equities holdings, he says. “We hope that next year the economic data will be better, and this will feed through into stock levels,” he adds. “In the long-term, shares do have better prospects. From the point of view of yields, they are the most promising type of securities.”
But despite their long-term asset allocation strategy, like many other types of German pension fund, professional schemes have little option at the moment. “They have no choice – they have to overweight bonds to ensure they have a surplus,” says one scheme manager.
German insurance companies, too, are in a difficult situation. The markets are awash with profit warnings, but shares are still very expensive. Stocks are in many cases still trading on earnings multiples of 18, 20 or even 25, he says.

Stock market indices are at levels not far above the lows plumbed in the wake of 11 September last year. “German insurance companies should see this as a buying opportunity, but they are just not prepared to put any more money into stocks right now,” says one professional pension scheme manager.
Horst Gehrer, managing director of the German tax advisers’ pension scheme, says his fund currently only as a small proportion of its portfolio in equities. “We don’t want to increase that at all at the moment,” he says. “We will look at it again in two or three years’ time to see if the situation has changed.”
Property across Europe has been a good performer in terms of total returns over the past few years, clearly outperforming stocks and even bonds. However Gehrer says the tax advisers’ pension scheme only holds a small part of its portfolio in property.
Other funds, such as the Brandenburg doctors’ pension scheme (Aerzteversorgung Land Brandenburg) hold a larger property weighting, with 11% of its portfolio, with 55% in fixed-income securities and fixed-income funds.
The largest part of the German tax advisers’ pension scheme fund is held in fixed-income securities – mostly Euro-zone government bonds, with maturities of up to 10 years, says Gehrer.