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Promoting property as a pension is wrong - MetallRente

GERMANY - Plans by the German government to subsidise private property purchase through supplementary pensions endangers the level of retirement provision, the industry pension group MetallRente has warned.

The so-called "Riester-Rente" - a state-subsidised third pillar pension vehicle - is to be opened to assets that may be used to subsidise the purchase of houses and flats.

However, Heribert Karch, managing director at MetallRente - a co-operation between the social partners in the metal industry topromote supplementary pension provision - said: "Retirement provision is too important a topic to sacrifice it for pleasing the building industry in the short-term."

Subsidising housing alongside pension provision will "confuse people saving for pensions", he added.

There are currently five ways of saving for retirement  in Germany, ranging from insurance products to occupational pension funds.

But Karch fears people will choose subsidised housing over retirement provision leading to an increase in the pension provision gap.

The MetallRente head explained the problem with the so-called "Wohn-Riester" (housing Riester) which is now being debated by the government was the lack of mobility it offered.

"Supplementary pension vehicles are adjusted to mobility, but "Wohn-Riester" is the opposite," he noted. "This does not fit current employment profiles."

Karch demanded a "long-term, stable political framework and a positive social climate" for supplementary retirement provision.

He added most people were still not using their legal right to put a part of their salary into an occupational pension vehicle.

A recent poll among 20-40-year-old employees showed most opted to buy a property rather than put the money into a pension fund.

Even if they have money left after purchasing a house, many people found the range of retirement provision vehicles "too complex", the German institute for pension provision DIA discovered.

According to another study on retirement provision in Germany, commissioned by the social ministry, around 40% of all men will have acquired supplementary pension rights by the time they are thirty. This figure is only 30% among women and for both sexes there is a considerable difference between West and East Germany with supplementary retirement provision in East Germany being much lower.

The comprehensive research was carried by conducting polls among 8,000 Germans and then extrapolating their projected retirement income.

In the report, the authors of the study noted almost 100% of Germans now aged between 40 and 63 will be covered by the first pillar pension system at their retirement.

"In all this optimism about statutory retirement provision, it is important to lose sight of the goal of widespread supplementary pension arrangements," Karch noted in light of demographic challenges faced by all European countries.

The Organisation for Economic Co-Operation and Development (OECD) noted in its latest issue of ‘Pension Markets in Focus' Germany was among the countries with the lowest importance of pension funds relative to the size of its economy.

With a 4.3% asset-to-GDP ratio the only European countries below Germany were France (1.1%), and Greece (0%).

By comparison, the OECD weighted average is 73.9% with Iceland (132.7%), the Netherlands (130%) and Switzerland (122.1%) in the lead.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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