The new Pensionsfonds in Germany will finally receive parity with other occupational savings vehicles following the decision to allow members to opt for the first time to take some of their pension in a lump sum at retirement.
Pensionsfonds will in addition enjoy greater freedom to invest following the decision to abolish compulsory guarantees at the beginning of this month.
Employers were favouring Pensionskassen over Pensionsfonds. Changes that were due to come into force as IPE went to press will enable those using the new Pensionsfond to take up to 20% of their savings in cash.
The ABA, Germany’s occupational pension fund association, has welcomed the changes. “This new legislation is on the right track and the changes will make the Pensionsfonds more attractive than they used to be,” says managing director Klaus Stiefermann.
“All four other vehicles for occupational pensions were able, not only to pay an annuity at the end, but also to pay up to 20% in cash and a guaranteed monthly payment that can be turned into an annuity. This was very flexible but the new Pensionsfonds did not have this option and so we lacked a level playing field.”
The change also makes the various occupational schemes more compatible and easier for Germans to choose between them.
Other changes passed this month will allow Pensionsfonds greater freedom in their investment following the decision to drop the guarantees they are obliged to offer employers.
At the beginning of the year it became mandatory for those offering occupational pensions to join Pensions Sicherungs Verein (PSV), a collective group offering insurance to cover members in the event of insolvency.
Says Stiefermann: “the question was then, if you have a system like this, is it still necessary for a Pensionsfond to have to give a guarantee of a certain payment?
“With the Pensionsfonds system, the employer has to become a member of the PSV which means that, if the fund is not able to pay the money it is supposed to, so the employer has to step in.
“Now, If the employer is going bankrupt, PSV pays. We said that a construction like this means it is not necessary for the Pensionsfond to give its very own guarantee. Since it’s always the employer taking care of the problem, the Pensionsfond should be as free to invest as possible.”