There is strong support for auto-enrolment in pension plans among young adults in Germany, according to a study commissioned by MetallRente, while researchers at an economics institute have said reform proposals focussing on occupational pensions risk missing the mark.
The Metallrente survey is the third the multi-industry pension scheme has commissioned to look into German young adults’ expectations and attitudes about retirement.
The first was carried out in 2010, and the second in 2013.
This year, 2,500 young adults between the ages of 17 and 27 were surveyed.
The survey was carried out by social research institute TNS Infratest and co-authored by academics Klaus Hurrelmann and Christian Traxler, and Heribert Karch, managing director at Metallrente and also chair of aba, the German occupational pension association.
A Metallrente statement summed up the study as showing that “midway through the pension reform process that began in 2002 … it has failed to reach its goals”.
In 2002, the German government introduced state-subsidised private pension schemes, the Riester Rente.
Its impact has been the subject of various comments from politicians in recent weeks, with its namesake (Walter Riester, the former labour minister) coming out to defend the initiative after claims it had “failed”.
Karch said the results of the latest study were “deeply distressing”, with the younger generation in an “increasingly precarious position with regards to pensions policy”.
For the first time, the survey asked young Germans about what “nudges” – an increasingly popularised behavioural economics concept – could lead them to contribute more towards their retirement.
The majority (65%) of those surveyed approve of the introduction of automatic enrolment in savings plans, with approval ratings rising to 89% for plans that incorporate opt-out clauses and subsidies, according to Metallrente.
Co-author Traxler said “the near unanimous approval of a default savings scheme was very surprising”.
Automatic enrolment is featuring among pension reform ideas being discussed in Germany.
An expert study commissioned by the German labour and social affairs ministry (BMAS) recently concluded that German industries should be free to introduce auto-enrolment into any future industry-wide pension plan.
The latter are arrangements proposed by labour and social affairs minister Andrea Nahles in spring of 2015, and would involve establishing defined contribution (DC) schemes through sector collective labour agreements – this is also referred to as the social partnership model of occupational pension provision.
Auto-enrolment also features in a “Deutschland Rente” proposal for a state-backed supplementary pension provision, formulated by regional state ministers in December last year.
The Metallrente-commissioned study also found that occupational pension plans are becoming more popular among young adults in Germany, with 40% of those surveyed having opted to join a company pension plan versus 31% in 2010; the percentage of young people using third-pillar Riester-Rente schemes fell from 50% to 42%.
Still, said Karch, more needs to be done to make company pension plans more attractive.
“If we truly want to strengthen occupational pension plans, obstacles have to be removed and better conditions created,” he said.
“This means subsidies for employers and employees need to be simplified and the more serious problems of fairness between the generations solved.”
Under these kinds of conditions, added Karch, “models that capitalise on social partnerships could also be promising”.
Policymakers must act to prevent the younger generation from old-age poverty, said Karch, calling for a “summit” of decision-makers to discuss further measures.
Unemployment the problem
For researchers at a private economics research institute, however, the focus on promoting occupational pension provision risks missing the mark.
The Institut der deutschen Wirtschaft Köln (IW, pictured) earlier this week said the biggest obstacle to ensuring financial security in old age was unemployment and that this was where political action was needed most.
Martin Beznoska, a tax expert at IW, said: “That is a problem politicians will not be able to solve with occupational pension provision proposals alone.”
The institute also said reliable data was lacking in the debate around occupational pension provision and that studies “often yield more questions than answers”.
This is why the institute questions the point of the industry collective DC proposal under discussion in Germany at the moment, it said.
On the basis of existing household data, IW analysed occupational pension coverage in the country.
It found that the prevalence of occupational pension schemes varies between 40% in one-adult households and 66% in those with couples, although researchers Beznoska and Jochen Pimpertz argue that other sources of retirement provision also need to be taken into account.
In this case, nearly 90% of households in couples have supplementary pension provision.
Their study calls for scepticism with respect to calls for mandatory participation in occupational pension schemes, even auto-enrolment that includes an opt-out feature, and also says a social partner-based model does not seem up to the task of ensuring old-age financial security.
Compulsion will not make a difference to households hit by unemployment that have limited financial resources, it said, and in other cases risks triggering “substitution effects”.
The social partnership model, meanwhile, also does not seem up to the task, according to the institute.
For one, it would not have application in case of unemployment.
Also, according to IW, there is little evidence for the assumption that, in small and medium-sized companies, a lower rate of second-pillar coverage is accompanied by a systematically low savings rate by employees.
Overall, the institute stresses the need for further research, saying that this, in the name of evidence-based economic policy, should have priority over “hasty political decisions”.