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Pension Reform Finally Passed |
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 In May 2001, the German Federal Council approved the second part of the government's pension reform legislation
, which will come into force on 1 January 2002. After months of
controversial debate, the upper house of parliament has now cleared the
way for the introduction of a private branch of the pensions system. In
expectation of substantial sums of money being invested, not only banks
and insurance companies but also the social partners are now seeking to
provide new opportunities for private pension investment
On 11 May 2001, the Federal Council (Bundesrat) (essentially
parliament's upper house), finally approved the second part of the
government's pension reform and thus cleared the way for a substantial
revision of the German pensions system. In essence, the reform will
replace the current "pay-as-you-go" state pension scheme (whereby
current pensions are covered by the contributions of those currently in
employment) by a dual pension scheme, consisting of both a reformed
pay-as-you-go state pension and a private pension, with employees
obliged to pay a proportion of their income into company or other
private schemes.
In January 2001, the "red-green" governing coalition of the Social
Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and
Alliance 90/The Greens (Bündnis 90/Die Grünen) had used its majority in
parliament (Bundestag) to push through the core of the planned reform.
However, several provisions, in particular those relating to the
introduction of a new private branch of the pensions system, still
required approval by the Federal Council. Although the governing
coalition parties do not have a majority in the Federal Council, which
consists of representatives from Germany's federal state governments,
they finally succeeded in gaining support from coalition governments
from a number of federal states, which also included parties which
originally opposed the reform. The law is now due to come into force on
1 January 2002.
According to Walter Riester, the Minister for Labour, the central state
will contribute DEM 20 billion in subsidies to help employees build up
private pensions and this will especially benefit families with
children. While employees can invest their funds freely in the
financial markets, private pensions schemes must meet certain criteria
before employees are eligible for state subsidies and tax exemptions.
The most important criteria are that:
* investments are tied in until employees reach the age of 60;
* a lifelong, constant or increasing monthly pension payment must be guaranteed; and
* employees' total contributions must be guaranteed
and protected from distraint (ie being seized by creditors).
To ensure that private pension providers meet these criteria, the
government is to create a new agency which will license new private
pension schemes. After a fierce debate, it was agreed that the new law
will also provide limited opportunities to make investment in real
estate by employees (as an alternative pension scheme) eligible for
state subsidies. In addition, the new private branch of the pension
system will support existing company-level pension schemes, including
new types of pension funds which will be eligible for co-funding by the
state. While such funds are fairly new - existing so far in the
construction industry and at Volkswagen - there seems to be a
growing interest in them. Thus, the Gesamtmetall metalworking
employers' association and IG Metall metalworkers union have recently
entered negotiations to establish an industry-wide pension fund.
According to estimates by IG Metall, by 2010 the fund will hold assets
worth DEM 50 billion and will thus make workers co-owners of parts of
German industry.
 Martin Behrens
WSI in der Hans-Bockler-Stiftung
28 July 2001
Obtained from EIRO
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