GERMANY - German workers may be able to force employers to implement hybrid DB/DC second pillar pension plans under forthcoming German pensions legislation, says Klaus Stieferman, managing director of the Heidelberg based ABA pensions association.

Stieferman says the German government is looking at the introduction of what he terms ‘contribution orientated benefit plans’ – in short - defined employee contribution plans of at least four per cent of salary with an employer guaranteed benefit.
These he says could be made statutory in companies and available to all employees, although workers will have to negotiate with employers as to which of the four possible German pension structures is used.

“ We are not going into defined contribution plans, but there is a stipulation of how much money an employee has to put in. This amount will then be managed via a life insurance framework to decide on the benefit,” says Stieferman.
“ The four per cent level could be raised if the employer agreed, but essentially this is financed by the employee so it is a kind of deferred compensation system, but the benefit is guaranteed by the employer like a defined benefit plan.”

Current discussion, he says, concerns how the ministry of finance will support the proposals.
“ The problem here is taxation, whether we will have something like a deduction of taxable income or whether we will go into a system where tax is paid at the end.”

Another stumbling block, he notes, is low income workers: “ They have no real benefit, because in the period of time where they are supposed to finance pensions they have low income and low tax rates. Some workers with families pay almost no taxes – therefore there needs to be a top-up payment by the state and this is what we are discussing at the moment.”

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