Germany’s Ministry of Finance (Bundesministerium der Finanzen) has drafted a long-awaited bill to reform the third-pillar pension system, in a bid to spread capital market products leading to higher returns among savers.

According to the government’s plan, savers will be able to choose between two products in the future, depending on their personal risk appetite.

One product, or retirement savings account (Altersvorsorgedepot), is offered without guarantees on contributions paid. It will invest in funds and other real asset classes. Another product, with 80% or 100% guarantees on the contributions paid, will be for those who have a less pronounced risk appetite but aim for returns on the equity market, according to the draft bill.

The government wants to create common standards to offer private pension products, in a bid to improve transparency and reduce costs, thus increasing the appetite for private pensions, it said.

It will encourage competition between providers of private pension plans to give savers the possibility to compare products through a digital and free-access comparison platform, and change providers, it added.

In the payout phase, savers can also opt for plans without an annuity. Savings and payout phases are clearly separated, so that people planning for retirement have the opportunity to revise decisions they made at the beginning of the savings phase, it added.

Subsidised private pension provision should also be available to the self-employed in the future, when a mandatory insurance policy for that group of people is designed under the pay-as-you-go system.

The government is reviewing basic allowances, introducing one proportional to contributions of 20 cents for every euro of savings (up to a maximum of €3,000, and from 2030 up to €3,500), and an allowance per child of 25 cents for every euro saved, up to a maximum €300 per child, according to the draft bill.

It also wants to introduce a bonus allowance of €175 for low earners, and a job entry bonus of €200 per year for a period of three years.

“It is important to ensure that low earners, single parents and families with children continue to particularly benefit from the support. These target groups should be the core of the subsidised private pension provision,” said Jörg Asmussen, chief executive officer of the German Insurance Association.

The fund association BVI welcomed the draft bill representing a “paradigm shift” for private pension, said CEO Thomas Richter. “The previous mantra that retirement provision must include a 100% guarantee on contribution and a life annuity no longer applies,” he added.

The number of private pension plans in Germany declined over the years of low interest rates, because of higher costs and low returns, to 15.9m in 2022.

The latest digital edition of IPE’s magazine is now available

Topics