Only 15% of German companies back actions to further strengthen the country’s social partner model with its pure defined contribution (DC) plans to further spread company pensions among employees, according to the survey “Future of Pensions” conducted by WTW.
The result of the survey shows little appetite by employers for a relatively new way to offer occupational pensions in Germany that the government is trying to reform to increase the number of employees signing up for corporate DC plans.
With the second Company Pensions Strengthening Act (Betribesrentestärkungsgetz II), the government wants to open up DC models for companies not bound by collective bargaining agreements, often small firms, create a framework for more aggressive investment strategies, and introduce an opting-out system for deferred compensations at company level.
The government has also drafted a bill to reform third-pillar private pensions (Riester-Rente) to introduce products with lower guarantees on contributions paid.
According to WTW, lowering guarantees on private pension products, from a regulatory perspective, leads to an “unequal treatment” of company pensions that can offer DC plans with lower guarantees on capital invested only under collective bargaining agreements, meaning only to a limited group of people, also after a reform of the second pillar pension system.
This de facto hinders the further spread of occupational pensions, said WTW’s retirement managing director Michael Karst.
Almost 40% of German companies believe the greatest leverage to spread company pension schemes is the introduction of an automatic enrolment mechanism, according to WTW’s survey.
Almost 35% believe that improving the classic company pension plan is the best solution to spread occupational pensions, the survey added. However, only a small number of employers have adjusted their pension plans in recent years.
Almost half of the employers surveyed by WTW (47%) have introduced the last new pension plan more than 10 years ago, and 16% in the last five to 10 years. Only around a quarter of the companies surveyed have adjusted their pension plans in the last three years.
Johannes Heiniz, retirement senior director at WTW, said: “Employers are wasting valuable potential. Company pension schemes should be continuously adapted to individual needs of the employees in order to offer real added value.”
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