The German association of corporate pension funds (VFPK) has rejected a recommendation that the government’s pension reforms be amended to allow direct insurance pension providers to offer guaranteed benefits.

Committees advising the Bundesrat – the parliamentary chamber in which Germany’s federal states are represented – said that direct insurance pension providers (Direktversicherungen) should be allowed to offer full or partial guarantees. The government has proposed allowing industries with collective bargaining agreements to run defined contribution pension schemes, without any guaranteed benefits being allowed.

The committees argued that a complete ban on guarantees was not necessary for this type of pension provision and that it would limit the collective bargaining partners’ or companies’ room for manoeuvre.

However, the VFPK rejected this suggestion, saying it would disadvantage both Pensionfonds and Pensionskassen by cutting the link between guarantees and employer liability. 

The recommendation is one of several that were made by committees advising the Bundesrat, which will debate the government’s second pillar pension reform proposal – the Betriebsrentenstärkungsgesetz (BRSG) – on Friday, 10 February.

VFPK said the Bundesrat committees’ recommendation would mean that life insurers and open market pension funds (typically run by life insurers) would be the only providers entitled to offer pensions with guarantees, which would mean occupational pension provision would “once again be left to agents and brokers”.

This, said the association, would be a “fatal” development to the detriment of savers.

The Bundesrat committees also argued that prohibiting direct insurance pension providers from offering guarantees would hinder the provision of disability and widower benefits. The VFPK rejected this argument.

The insurance industry’s representative association, the GDV, lobbied against a blanket ban on guarantees in the new pension plans. The government ignored the GDV’s wish, however. Several other stakeholders also felt their views had been dismissed.

Auto-enrolment and discount rates

The committees also made other recommendations that go against some key elements of the government proposals, such as allowing companies that are not part of collective bargaining agreements to offer opting-out pension models. The government’s reform package currently only allows auto-enrolment for companies involved in collective bargaining agreements. Aba, the German pension fund association, has also argued for companies outside of these agreements to be allowed to offer opting-out models.  

The Bundesrat committees also recommended that the full chamber push for a lowering of the discount rate used to calculate pension liabilities for tax purposes (steuerlicher Rechnungszins). In contrast to the rate companies use under the statutory accounting framework, this has remained unchanged for decades, at 6%, and is seen as disadvantaging companies running book reserve pension schemes (Direktzusage).

Recently there have been claims that the disparity between the two rates is unconstitutional. However, Thomas Hagemann, chief actuary at Mercer in Germany, told IPE that the government would probably indicate that it intends to look into the issue, but it is unlikely to modify its reform proposal for fear of introducing risks to the law being passed.

“Lowering the discount rate for tax accounting would affect federal and state finances and is therefore controversial,” he told IPE.

A spokeswoman for the Bundesrat told IPE it is likely to adopt all or some of the committees’ recommendations.

The government would then have the option of formulating a response to the Bundesrat position. The Bundestag, the larger parliamentary chamber, would then consider both documents along with the government’s reform proposal.

The government – a grand coalition between the Christian Democrats (CDU) and the Social Democrats (SPD) – does not have a safe majority in the Bundesrat, but holds a large majority in the Bundestag.

The Bundesrat is due to consider the committees’ recommendations on Friday. The first reading of the pensions reform proposal in the Bundestag is due to take place in the second week of March. 

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