The Wolfsburg-based German automobile group Volkswagen is creating a pension fund for its 80,000 plus employees, which will see an initial transfer from its current book reserve provisions of more than DM160m (e82m).
The new plan, which also applies to daughter companies of Volkswagen, including Volkswagen Sachsen and Audi, will receive a year’s worth of contributions to the fund from each entity to begin with.
For the Volkswagen arm of the group this will represent DM160m.
The fund’s structure will incorporate a guarantee rate of three per cent per annum for employees alongside a DC element whereby employees will collect the excess returns from the fund.
For current employees the company will pay two per cent annual contributions, with employees able to claim returns of up to ten per cent from the fund.
Returns above 10% will be placed in a reserve to meet future payments.
For new employees the company will pay one per cent in contributions but employees will be able to claim the full amount of return gained by the fund.
A spokesperson at Volkswagen explains the transfer: “At the moment what we have is like a DB system where we give a certain guarantee, but further benefits depend on the development of the capital markets.
“The new fund is a mixture. It is on a defined benefit basis, because this is the legal situation in Germany at the moment – you cannot do anything else like having a pure defined contribution plan – it’s impossible.
“The company will guarantee three per cent and in the event of a surplus over three per cent – for the active employees up to ten per cent is for them and the remainder will be placed in a reserve.
“For the new employees there is no limitation on what they may get.
“Both ways mean that we decrease costs immensely and this will be a huge sum over the long term.
“We have the highest labour costs in the world so we have to do something to stay competitive.”
The spokesperson says the group’s unions were entirely supportive of the programme: “We started the discussion process with them several years ago and I think they see the necessity of this.
“They have already had a positive experience with the time/asset bond system here where early retirement can be bought through overtime or cash.”
The new scheme, named the VW-Pension Trust will have paritary representation of 50% employees and 50% employers on its supervisory board.
Investment management and the custody of the fund’s assets will be put out to tender as the pension transfers are received.