The German government could produce a legal framework for industry-wide pension funds as early as this year, Uwe Buchem, Mercer’s market business lead for retirement in Germany, Austria and Switzerland, has said.
The new industry-wide arrangements would be similar to the so-called Dutch model insofar as they would be set down in collective bargaining agreements, hence their “working title” in German – Tariffonds.
The German pension industry’s response to a first draft of paragraph 17b of the law governing occupational pensions has been lukewarm at best.
The government’s revised proposal, however, has addressed many of the industry’s major concerns, such as the introduction of pure defined contribution (DC) schemes, which would have been a first in the country’s second-pillar system.
Under the new draft, a minimum guarantee will have to be made – but by the pension fund itself rather than the employers.
Buchem told IPE that a pure DC plan including the possibility of total loss “would not have matched the idea of the German second pillar”.
He said it was therefore important that a minimum guarantee be re-introduced and “absolutely” welcomed the new proposal.
Because of this change, the government’s revised draft is “likely to succeed”, he added.
The amendment also means that, for the first time, pension plans themselves will have to become members in the solvency protection fund PSVaG.
Its director, Hans Melchior, declined to comment on this proposal.
Details are still being negotiated, and Buchem noted that it “remains to be seen whether the PSVaG in its current form is suitable” to take on this unique new “constellation” of pension funds and employers being members of the same protection scheme.
Buchem said, depending on how well the new collective pension plans were received, they could accrue large amounts of assets in future, presenting “a whole new challenge” for the PSVaG.
And all employers, “including those opting not to join a Tariffonds, would have to pay in the event of an insolvency”, he added.
According to Buchem, the contributions to the PSVaG from these new Tariffonds might be based on their asset allocation.
Further, given their similarity to existing Pensionsfonds with a minimum guarantee, they might be allowed a similar discount to those vehicles.
It also remains to be seen whether these new plans will be set up as completely new entities, which would entail a minimum start-up cost and separate administrative structures.
On the other hand, they might be included in existing Pensionskassen or Pensionsfonds, but all these details are yet to be debated, Buchem said.
Click here for more details on the new proposal by the German government on industry-wide pension plans