The German first pillar pensions manager Deutsche Rentenversicherung (DRV) has backed away from the idea of managing the assets in the generational capital equity fund (Stiftung Generationenkapital) after the contract with the designated manager, the nuclear waste management fund KENFO, expires in 2026.
“We do not have experts employed by us who can take on such risky investments,” said president Gundula Rossbach last week speaking at the Insurance Summit organized by the German Insurance Association (GDV), adding that DRV manages its reserve fund (Nachhaltigkeitsrücklage) according to “very strict investment rules”.
DRV manages a reserve fund to compensate for unexpected fluctuations in income and expenses.
The Bundesbank might instead be considered to take over the asset management of the first pillar investment equity fund in the future, Rossbach said, because it is “an institution that deals with such risky investments”, referring to the example of the care provision fund (Pflegevorsorgefonds).
KENFO will take over asset management responsibilities for equity investments of the generational capital fund until the end of 2026, with the possibility of extending the mandate, according to the draft law put forward by the finance and the labour ministries earlier this month.
Asset management tasks are transferred from the Stiftung Generationenkapital to KENFO “provisionally”, and primarily with the aim of building up a globally diversified investment portfolio with the foundation’s assets until the establishment of the its own asset management structure, or the task transfer to another provider, according to the draft law.
KENFO already has its own architecture for asset management in place, and therefore can start right away, state secretary Rolf Schmachtenberg explained during the event.
The generation capital fund is a public investment to slow down the contribution rates’ increase in the first pillar pension system, by building up assets worth €200bn over the next decade, and paying €10bn per year from 2036 to the DRV.
The reform has been widely criticised by the Greens and the unions, and lately also by actuaries.
In a statement, the German Association of Actuaries (DAV) and its branch, the Institute of Pension Actuaries (IVS), slammed the changes wanted by finance minister Christian Lindner as “unrealistic” in terms of returns on equity investments, non transparent on the assets outlook (€200bn), with contributors that might ultimately shoulder the risks for a lack of returns.
DAV and IVS have therefore called on the government to shoulder the risks and, if necessary, provide funds to stabilise the contribution rate. They don’t consider the reform a step in the direction of a capital funded system.
“Capital funded means that a capital stock is saved from unburdened contributions from which the benefits are later paid – this is how company pension schemes and private pension insurance work,” said DAV’s chair Maximilian Happacher.
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