German occupational pension schemes will end this year in robust shape, gearing up to deal with uncertainties and risks coming up in 2025, as contributions are set to increase, boosting assets invested in equities.
“Despite economic uncertainties and challenges, trust in company pension schemes is high, and [second pillar] pension institutions are well prepared for the future,” Hanne Borst, head of retirement Germany at WTW, told IPE.
Pensionsfonds continue to be one of the most preferred vehicles for companies to outsource direct pension promises, as many industries are changing their business models, she said.
This year has seen a stable labour market and rising wages, which are leading to higher income from contributions for company pension schemes, as in many cases plan contributions are linked to wages, Borst added. Company pension schemes are also benefiting from bullish equity markets and stable interest rates.
The ChemiePensionsfonds (CPF), the vehicle used to invest assets to offer pure defined contribution (DC) plans for employees in the chemical industry under the so-called social partner model, has returned 17.04% since it started to allocate capital for such plans in 2022, and 9.35% in the first three quarters of 2024, according to a presentation by Heiko Sturm, head of benefit consulting at insurance group R+V, the owner of the Pensionsfonds.
Through a DC plan, CPF allocates 52.5% of its assets to equities, 22.5% to government bonds, 4.3% to corporate bonds, and the remainder to other bonds and deposits, Sturm said.
Fidelity International, the manager of the DC plan offered by Höchster Pensionskasse VVaG, allocates capital through a Spezialfonds.
It invests 38% of its assets in global equities, 30% in investment-grade bonds, 7% in emerging markets equities, 10% in government bonds and 7.5% in high-yield bonds, according to Fidelity’s head of workplace investing, Christof Quiring.
Fidelity is initially investing assets in ETFs to keep costs in check, Quiring said.
Costs and DC plan changes
German companies tend to keep costs and investment risk under control through an active management approach.
“[Moreover] employers, together with employees, develop well-thought-out concepts that require individuals to have a significantly lower level of financial education than, for example, in the case of private pension provision,” Borst said.
German media company Bertelsmann is considering switching to a new DC pension plan – Beitragsorientierte Leistungszusage (BoLZ) – increasing contributions for employees, said Hartmut Klein, chief compensation officer at Bertelsmann.
Bertelsmann plans to discuss the switch to a new pension plan with stakeholders involved, he added.
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