IPE DACH Briefing: KENFO claims Generational Capital concept will meet expectations

Germany’s nuclear waste management fund KENFO has conducted research showing that the Generational Capital concept, the equity fund planned in a reformed first pillar pension system, works, and will meet the expectations of the government.

”Our simulations show that, on average, the capital stock of the Generational Capital fund will grow to €247bn by 2036, enough to guarantee a €10bn payout to the first pillar manager Deutsche Rentenversicherung to slow down contributions increase,” the fund said in a statement 

KENFO believes it is realistic that the Generational Capital equity fund will generate a net return of on average 3.8% per year after deducting all interest on loans and other costs.

The fund has disclosed its positive assessment of the potential performance of the equity fund to members of parliament (MPs) who are bracing for a tough debate in parliament to pass the reform.

The first debate in parliament on the Rentenpaket II reform has revealed divisions among coalition partners, raising questions on whether the government will be able to bring the changes to the finishing line in this legislative period (Germany’s general election is in 2025).

The government has also drafted a bill to reform the third pillar pension system, to offer products with lower guarantees and boost market competition.

But critics say that it fails to create a framework for more competition among providers, and savers will still have to choose between expensive products with high fees.

The reform could also have a negative impact on the social partner model with its defined contribution (DC) plans, the equivalent of a product with lower guarantees in the second pillar, that needs a collective bargaining agreement, a complex procedure, to be offered to employees, whereas each individual can easily sign up for a private pension product.

In Switzerland, interest-bearing tradable debt certificates issued by the Swiss National Bank (SNB), the so-called SNB Bills, are a new tool for liquidity management being used by Swiss pension funds.

Classic money market ways to dispose of liquidity for pension schemes still include cash, short-term bank deposits and short-term loans to companies, or segregated mandates handed to asset managers if pension schemes have to place a large volume of liquidity.

The money market fund volume in Switzerland has doubled in the last two years, from CHF9bn to CHF17bn, according to PPCmetrics.

In Austria, the multi-employer pension fund owned by insurers Zürich and Generali, has taken over the provident fund fair-finance Vorsorgekasse, a move that can bring synergies on sustainable investing.

Items to note:

• The IPE Conference & Awards 2024 will take place 2-3 December 2024 at the Cubex Centre and Žofín Palace in Prague. Sign up now!

Luigi Serenelli

IPE DACH correspondent