The German government’s pension reform package is back on track after the coalition parties came to an agreement on the proposed legislation last week, leaving untouched a proposed ban on guarantees for new defined contribution plans.

The draft Betriebsrentenstärkungsgesetz (BRSG), which is designed to boost occupational pensions coverage, can now resume its passage through parliament.

A slightly revised draft will be debated in the Bundestag – one of the two chambers of parliament – on Thursday, after a final review of the reform by the parliamentary social and labour affairs committee the day before.

The draft law will then be debated by the Bundesrat, the upper house of parliament where the federal states are represented. This is planned for early July.

The German investment management association, BVI, said the reform package agreed by the coalition was a “milestone” for occupational pensions in Germany.

“The draft BRSG is the best thing in a while that politicians have come up with when it comes to pensions,” said Thomas Richter, chief executive of BVI. “With voluntary opting-out, defined ambition pensions, and the ban on guarantees, the social partner model offers advantages for employers and employees.”

Klaus Stiefermann, chief executive at aba, said the German occupational pensions trade body was pleased that the coalition was able to resolve the main points of contention before the summer break and ensure that the law could be passed in its revised form.

He told IPE that aba had had concerns the reform would be diluted in certain key aspects, to the point that it wouldn’t have been clear if the social partner model option would even be taken up.

The “social partner” model is a central pillar of the BRSG. It means sector-wide collective bargaining parties – including unions and employers – can introduce defined contribution (DC) or “defined ambition” pension schemes, with neither the employer nor the pension provider allowed to provide guarantees. Both these aspects were heavily debated by the coalition in preceding weeks. Defined contribution pensions have not been possible in Germany so far.

Stiefermann said a weakening of the guarantee ban was a big concern: “We are happy that this dilution did not and won’t occur.”

Resistance to aspects of the reform is said to have come from the CSU in particular, the Bavarian sister party to the centre-right CDU. It is said to have had the ear of insurance companies opposed to the proposed ban on guarantees.

However, Andrea Nahles, the German labour and social affairs minister spearheading the reform drive, had earlier this month said she was optimistic about being able to overcome concerns about the ban on guarantees.

aba said some changes were being made to the draft law as a result of the agreement reached by the coalition last week. Collective bargaining parties will be required to consider opening any new DC scheme they set up to companies that are not part of the collective bargaining agreement.

Other changes agreed by the coalition parties included a requirement for the employer to pass on to its pension vehicle the social security contributions it saves when it implements “salary conversion” (Entgeltumwandlung).

Also, the regulation on pension fund supervision is to be amended to require a sufficiently large buffer to be in place when benefits are increased to ensure a fund’s coverage ratio amounts to at least 110%.

According to aba, this would help the pension fund withstand a stock market collapse of 25% without having to cut benefits, even if 35% of assets were invested in equities.

In its comment on the coalition agreement on the draft law, BVI said the ban on guarantees under the social partner model meant equities could contribute more to investment returns than before.

Other changes agreed by the coalition parties included an increase to the basic allowance for Riester contracts – state-subsidised private pensions – from €165 to €175, and an extension of the tax incentives for employers contributing to low income earners’ occupational pensions. Previously the tax incentives were available in relation to employees on a gross income of up to €2,000, but this is to be raised to €2,200.

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