Germany’s ministry for labour and social affairs (BMAS) is considering a relaxation the minimum guarantee offered by Pensionsfonds.

In a letter to stakeholders, BMAS proposed changes that would allow greater flexibility for the pension payout phase.

Another proposal currently being discussed would allow certain employees to opt out of the protection offered by the insolvency fund PSV.

In Germany, defined contribution (DC) funds have to be set up with a minimum guarantee, or Beitragszusage mit Mindestleistung, and if a Pensionsfonds is used as a vehicle the pay-out phase has to contain an insurance element.

At present, Pensionsfonds are hardly used upon retirement, but rather as a financing instrument for pension pay-outs.

The new proposal by the BMAS aims to change the norm by allowing the application of a 0% discount rate on all pensioners’ assets in Pensionsfonds.

Employers would only be required to top up assets if returns fell below the minimum discount rate of 0%.

Thomas Jasper, head of retirement at Towers Watson in Germany commented: “As stated in the proposal, this [approach] can really help Pensionsfonds to increase efficiencies and opportunities in the asset allocation and with it the chances of a higher pension for members.”

The new law would allow Pensionsfonds to make full use of the regulatory freedoms in asset allocation which they can currently only apply to active members’ assets.

Stephan Hebel, from the pensions department at Mercer in Germany also welcomed the proposal. “This is also a chance for employers to allow Pensionsfonds to try and generate higher pensions without a higher risk of top-ups.”

He added the proposal was a “sensible evolution of the Pensionsfonds”, which was hindered in its development by the current regulation.

Jasper was also convinced the change would be a “major step towards increasing the attractiveness of the Pensionsfonds”.

A third expert did not want to go on the record before the end of the consultation phase on the new proposal on 10 September.

She pointed out the proposal would only change the supervisory framework but not the legislation regarding workers’ rights:

“Volatile pension pay-outs are something very unusual for Germany,” she stressed.

On the other hand she noted the new regulation would allow Pensionsfonds to have one portfolio both for active as well as retired members.

This would help save costs, also because providers would not have to hire an insurer to handle its payout phase.

Hebel saw the proposal as part of the preparations for new industry-wide pension plans proposed by social minister Andrea Nahles earlier this year.

Nahles has encouraged employers and employees to set up Pensionsfonds or Pensionskassen to create industry-wide pension plans with only minimal guarantees. 

The second part of the proposal by the BMAS would allow workers to individually opt out of PSV-protection if their employer went insolvent.

“This makes sense in cases where the pension promise is already fully insured by a reinsurer, maybe if it is an old contract with interest rates of up to 4%,” Hebel pointed out.

It would also help the PSV lower its admin costs by not having to take on members covered by a reinsurer’s contract.

The experts all stress it was currenty unclear when the new proposals would be implemented.

Some have speculated the changes could be integrated into the revised supervisory regulations brought about by the implementation of the portability directive and scheduled for this autumn. 

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