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Push for German Pension Reform |
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 The German government is being urged to turn the country into a domicile for pan-European pension arrangements
, as Liam Kennedy reports.
December 1974 witnessed a milestone for German pensions. It was, after
all, the month in which the tenets of the country’s occupational
pension legislation were passed in the Bundestag. Thirty years on, the
German pension industry, while reluctant to describe the raft of recent
reforms as a flop, is hard pressed to go out of its way to praise the
situation.
Three changes between the end of 2001 and the beginning of 2004
represented a profound re-writing of the “constitution” of German
pension funds and their investment portfolios.
The first was the 6 December 2001 circular of the then regulator – now
part of BaFin. This circular permitted KAGs
(Kapitalanlagegesellschaften) to outsource fund management to third
parties. This was the catalyst for a chain of events that has left the
KAG as a regulatory shell, allowing investors to do business with as
many specialist managers as they wish within one Master-KAG.
The second change was the advent of the Riester reforms, which created
voluntary individual retirement accounts – rather shunned by Germans –
as well as the Pensionsfonds. This corporate pensions vehicle, which
enjoys freer investment guidelines than its insurance-based counterpart
the Pensionskasse, has also not been successful in the workplace.
More recently, summer amendments to the new Investment Modernisation
Act, which came into force at the beginning of 2004, allow German
institutions access to any UCITS mutual fund, which has allowed smaller
German pension funds much greater access to specialist investment
styles than has hitherto been the case.
Funds and insurance companies can also now invest in equities traded on
non-EEA exchanges, and may invest up to 10% of fixed income investments
outside the European Economic Area. These were only previously
permissible in the “other debt instruments” category.
These changes have also led to a rash of new consultancy partnerships
and start-ups as well as heightened interest among foreign – for which
read Anglo-Saxon – investment consultancy firms. Several have started
up or revived German operations.
But there is pressure on the government to improve legislation to
stimulate second and third-pillar saving, and to encourage Germany as a
domicile for pan-European pension arrangements.
The Heidelberg-based occupational pensions association, the aba,
intends to continue discussions on a holy grail for some practitioners
– a pure defined contribution arrangement as in the UK or the US.
However, there are caveats: “We have to look at what is done abroad,”
the managing director of aba, Klaus Stiefermann, told our sister
publication dpn. “There we see that the trend is rather moving away
from pure DC towards hybrid products.
It also intends to highlight the issue of tax relief for pension
contributions and salary sacrifice arrangements. Tax freedom is limited
to 4% of salary but freedom from social security contributions – a
considerable benefit for employers – will end in 2008.
The aba also intends to stimulate a general debate about occupational
pensions – hardly an edifying prospect three years after the optimism
at the time of the 2001-02 pension reform, when the word was of a
forthcoming “renaissance” in German pensions.
Liam Kennedy
17 January 2005
Obtained from European Pensions & Investment News
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