Regulatory hurdles and “over-cautiousness” have effectively made Germany a “closed shop” for institutions for occupational retirement provision (IORPs), according to Michael Ries, managing director of Ries Corporate Solutions (RCS).

The Bensheim-based consultancy is currently advising an unnamed international company that wants to enter the German market.

The client, with a Benelux-based administrative platform, plans to offer an IORP vehicle with the aim of “providing global services to German employers”, Ries told IPE.

According to the consultancy, this solution will “effectively open the door” to the German market for foreign providers.

RCS is advising on a cooperation with an insurer through which members can purchase annuities on retirement, as well as outsourcing other services to take on local administration.

He said the country had been difficult to access due to the complexity of the German model and the ”over-cautiousness” of German clients.

Under current regulation, the scope of activity for a Pensionsfonds – which is what a cross-border IORP qualifies as – is limited to transferring existing on-book pension reserves, or “past services”, and managing deferred compensation plans. 

If future rights to benefits are transferred, this cuts into the tax allowance for re-assigning parts of an employee’s salary, or Entgeltumwandlung.

To cover tax-efficient contributions to the German healthcare system, foreign providers need an agreement with a CTA and an Unterstützungskasse, and they need to be able to offer services such as checking a member’s status.

Furthermore, pension providers must have the know-how to administer the different options offered to German companies, including non-IORP solutions.

“It means that, to enter the German market, the foreign provider must support all the technical resources necessary to manage a wide range of products, including non-IORP solutions, with the support of local experts,” Ries said.

This complexity, he said, had served to “check the ambitions of non-German providers”.

A further hurdle is Germany’s preference for a life-long pensions payout, or deferred compensation, rather than a one-off payout of accrued assets.

“This means you have longevity risk to manage, actuarial challenges and the task of monitoring each migrant worker’s survival status,” said Ries.

Commenting on why the German market was harder to penetrate than others, he said belief in the country’s supervisory structures was “very strong”.

“It is difficult,” he added, “for a foreign company to gauge this feeling in the market and to understand all the regulatory hurdles.”

But Ries argued that the German retirement-provision landscape was “rather backwards” when it came to transparency and fees, adding that it was still almost impossible to ask a German retirement vehicle for a total expense ratio.

“So, from an objective point of view, it makes sense to want to enter a market with a low general product quality and billions of unfunded liabilities,” he said.

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