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Size will matter in new German pensions market

GERMANY – Size will matter in the new pensions market in Germany, says Commerzbank Securities (ComSec) in a research paper entitled, German Pensions – Racing for a bigger prize.

ComSec believes that critical mass will become important, since Germany’s new private pensions are low-margin, large-scale products.

In addition, ComSec points out that the costs of introducing the new products are higher than for other products of a similar nature, because insurance companies that offer them have to do the research and development from scratch.
Furthermore, the reporting requirements for the new funds far exceed that of the existing, traditional retirement vehicles in Germany.

Other areas that ComSec considers significant include distribution networks and IT set-ups.

ComSec believes that insurance companies will need a strong corporate distribution network in place for pension funds and group schemes and that the flexible nature of the new pension funds means that they will have to invest heavily in updating or implementing new IT systems.

According to ComSec, larger companies will be able absorb the cost of expansion, whilst smaller players are more likely to begin outsourcing their administration. Moreover, the new market could also lead to a flurry of cooperation and mergers between small insurance companies to cope with the cost of expanding their IT systems and distribution networks.

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