German Pensionskassen want progress to free up capital for private markets

The German occupational pension industry wants quick progress on company pensions reform and a faster process to allow pension funds to invest in riskier assets. 

“Something has to happen now [to reform the pension system], we need courage, courage to think in new ways, and that is my demand to the new government,” Beate Petry, chair of BASF Pensionskasse, told a pensions conference last week in Berlin.

Speaking at the Zukunftsmarkt Altersvorsorge event, Petry also called on the financial supervisory authority BaFin to speed up its review of the new investment law covering Pensionskassen, and to review its stress test regime so Pensionskassen can start to diversify investments.  

The proposed investment ordinance, drafted by the Finance Ministry, introduces a new 5% quota for security assets to specifically invest in infrastructure, and the possibility to increase the overall risk-asset quota from 35 to 40% to boost investments in areas like private equity. Germany’s 125 Pensionskassen are supervised under insurance law and manage over €200bn in assets, according to the latest BaFin figures.

“A framework was created to enable [Pensionskassen] to invest targeting higher returns. We now need implementation by BaFin. We can only hope that this happens quickly,” Petry said.   

The new investment rules go hand in hand with a proposal to allow underfunding by Pensionskasse, part of the second-pillar reforms drafted by the SPD-led three-party government that collapsed last year.   

“We can really generate returns by making funding regulations more flexible. Let’s do this. This is a call to politics,” Petry said during the event. 

She also added that companies not bound by collective bargaining agreements should be allowed to join social-partner schemes to offer defined contribution (DC) pension plans. 

BASF, which automatically enrols employees in its Pensionskasse, will consider joining a social partner plan but not before responsibilities for managing the model are clarified, Petry added.  

Some 20% of BASF employees have Riester-Rente private pension contracts that are “an administrative monster”, Petry added, referring to the prospect of reforming third-pillar private pensions. The firm’s Pensionskasse managed around €9.9bn in assets at the end of 2023, according to figures published by BaFin. 

‘Food for thought’ on lower provision

The number of employees entitled to occupational pensions in private companies in Germany has decreased by 3.1% since 2019 to around 15m, as of 2023, according to Michael Karst, managing director for retirement at WTW. “That should give us food for thought,” Karst said.  

Subsidies for low earners have reached 1m beneficiaries, but this doesn’t necessarily expand occupational pensions to the extent that an opt-out mechanism or auto enrolment at company level would, Karst said.   

Bosch Pensionsfonds CEO Dirk Jargstorff pointed to the need to strengthen collective buffer mechanisms to protect employees and retirees from market volatility.

Shifting asset allocation to defensive strategies or life-cycle models can help reduce volatility, but can also lead to lower returns. “We need to change the framework,” Jargstorff said. 

Labour laws do not preclude the implementation of a collective buffer, but clear rules and a supervisory framework for buffer mechanisms are still needed, he added.  

Jargstorff also called for new options for occupational pension solutions in Germany.  

“We see what our colleagues in the US and UK can do. Why is it so difficult to implement such approaches in Germany?” he said.