GERMANY - Germany has implemented the EU directive on occupational pension funds more than two months before the September 23 deadline following a parliamentary vote on Friday.

Germany’s Bundesrat, or upper house of parliament, approved a government draft law that transposes the directive and aims to strengthen the competitiveness of Pensionsfonds, a three-year-old vehicle modelled after the Anglo-Saxon pension fund.

The swift approval surprised some German pension experts. They had wondered whether parliament would find time to do so before it is dissolved ahead of the federal election due on September 18.

The law, unveiled by the finance ministry, aims to de-regulate Pensionsfonds and Pensionskassen, the traditional vehicle that accounts for roughly one-fifth of the €367bn in German corporate pension assets. It seeks to do this by permitting both vehicles to do business anywhere in the EU, though they will continue to be regulated by Germany’s BaFin.

But since the law treats Pensionskassen as insurance-type vehicles, their current investment restrictions still apply. These include a 35% cap on equity holdings and a 5% cap on hedge fund holdings.

The restrictions were built into the Pensionskassen so that they could achieve a minimum return on paid-in savings. The return is currently 2.75% but may fall to as low as 2% from January 2007.

Such a low return could prove a liability for Pensionskassen when they compete elsewhere in the EU. Pensionsfonds, meanwhile, do not face such restrictions but instead follow the so-called “prudent person” rule in investing.

Still, German pension experts point out that even if the investment restrictions on Pensionskassen had been dropped, they would not necessarily be better prepared for EU competition.

“The EU pension funds directive does not provide the freedom of movement that the EU Commission wants,” said Hans Melchiors, board member at life insurer Volksfürsorge responsible for occupational pensions.

“This is because there is no tax harmonisation in the EU and because the various social and labour laws have to be respected in each EU country. These are all barriers to competition,” Melchiors told IPE.

Even so, the draft law strengthens the competitiveness of Pensionsfonds vis à vis Pensionskassen by allowing companies to, at a much lower cost, transfer assets held as book reserves (Direktzusage) to Pensionsfonds. Those book reserves currently account for 60% of the total €367bn in assets.

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