GERMANY – The Bundesrat upper house of the German parliament has rejected the social democratic-led government’s plans for second and third pillar pension reform.

The somewhat expected move follows the decision of the Bundestag, or lower house, to accept the reform in late January.
The Christian Democrat party (CDU), the largest opposition body, has a majority in the upper house of the parliament, but not in the lower house.

The regulations, however, have met with widespread criticism in Germany, mostly because of the angle they take on pension fund investment.
Under the law, the proposed new occupational retirement vehicle the ‘Pensionfond’ would be placed under insurance regulation.

“ The idea of pension funds is superb, but the regulations are contradictory to the development: asset funding is closer to the capital management law than the one on insurance supervision,” says Horst Ludwig; managing director of Frankfurt-am-Main based Pension & Compensation Consulting.

“ You can argue that it shouldn’t be like this, but then again, why don’t we see how it works and then adjust it. You have to start somewhere, and certainly, if you start from scratch you can always say that you could have done things better or in a different way,” Ludwig adds.

The proposed second and third pillar pension reform in Germany has been designed to counterbalance the reduction of the state retirement system, which will see the replacement rate of salary progressively decrease from around 70% to a 67% level by 2030.

A mediation committee, consisting of members of both the lower and upper houses will meet shortly to discuss amendments and changes to the proposals.
The law is expected to be ratified, however – albeit in a modified fashion - in the near future.

Some in Germany argue that the row over the pension reform is part of opposition politics, while others believe the CDU has a genuine cause in opposing the heavy regulation involved.

“ What is obvious, and a good argument for the CDU, is that it the_legislation is totally over-loaded. Partly it is against the government, but as we have seen, the discussion has been more driven by the over-regulation,” says Ludwig.