German Pensionskassen association slams first pillar equity fund plan

Verband der Firmenpensionskassen e.V. (VFPK), the German association for corporate pension funds, has slated the govenrment’s plan to set up a first pillar generational capital fund (Generationenkapital) to invest in equity, part of a wider reform of the country’s pay-as-you-go pension system.

VFPK’s criticism focuses on the government’s intention to borrow capital to build up assets in the first pillar fund, a channel that experts consider highly speculative and risky, it said in a statement.

“The government’s model is reminiscent of the strategies of an aggressive hedge fund. The risks [associated with] debt-financed investments are significant, and not in line with our understanding of responsible financing [under the] generational capital [model]” said Helmut Aden, VFPK’s chief executive officer.

Furthermore, the association is “extremely skeptical” about the role assigned to the state as an equity investor through the fund, he added.

For a successful implementation of the generational capital plan, the state would not only have to provide the necessary infrastructure and expertise, but take over the risk resulting in a negative impact of decisions taken at political level on returns, VFPK continued.

The generational capital equity fund is one pillar of the reform package (Rentenpaket II) setting the level of pensions at 48% of the average wage in the long-term.

VFPK rejects the plan to pinpoint the level of pension, in view of the already high expenditure of public funds through subsidies for pensions, and without considering further measures.

The association remains fundamentally in favour of a plan to strengthen pension provisions through additional capital-funded coverage and investments in real assets, it said, demanding, however, that the government strengthen capital-funded pension provisions in the second pillar pension system (corporate pension schemes), reinforcing the role of investment managers.

The government is preparing the reform of the second pillar pension system through the Betriebsrentenstärkungsgesetz II to widen investment options with higher returns for Pensionskassen, boosting investments through more flexible funding ratio requirements, according to occupational pension association Aba.

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