BVI, the German association of insurers, investment companies and building societies, has presented a five-point plan aimed at radically simplifying the retirement system. The aim is to deliver better returns and to lower costs for savers, thus encouraging a stronger uptake.

The disclosure was triggered by the extremely low interest rates environment and a stagnating uptake, which are making a reform of state-sponsored private retirement plans a matter of urgent necessity.

The BVI is suggesting that:

  • standard retirement products should be made as simple and easy to understand investment choices and, therefore, offered at a lower cost;
  • there should be an attractive and transparent form of state funding that can be intuitively understood by everyone: each euro paid in by the saver is topped up by at least 50 cents;
  • state-sponsored private retirement plans should be available to everyone – including the self-employed;
  • a relaxation of the guarantee of total gross contributions shoudl be in place in order to boost return opportunities for savers;
  • a general simplification of the procedure for granting bonuses in order to reduce the number of bonuses clawed back each year (currently some 800,000) by more than 90%.

BVI is asking the German government to call an early meeting with providers in order to realise its aim of strengthening private retirement planning by the first half of 2020. The proposed reform initiatives offer considerable cost-cutting potential. Close cooperation between providers and the government is vital in order to achieve this, BVI stated.

The association sees ongoing development of the current system as being a substantially more convincing reform approach than switching to a different system altogether.

Suggestions, such as a virtually compulsory Deutschland-Rente, as proposed by the Government of the Federal State of Hesse, or the “extra pension” advocated by the Federation of German Consumer Organisations (vzbv), place a burden on employers.

A radical change to the system, more or less compulsory, without minimum protection for investors, would produce considerable insecurity among the population, the BVI concluded.

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