The reform of Germany’s third pillar pensions (Riester-Rente), hailed by the fund industry as a paradigm shift and dubbed “Lindner-Depot” by the liberal party FDP in reference to the party’s head and finance minister Christian Lindner, does not appear to be groundbreaking critics say.
The draft bill proposed by the government to reform the third pillar pension system “is not a real game changer”, said Stephen Rehmke, BdV’s member of the management board.
With the reform, savers continue to struggle to choose retirement provision products, he added, noting that BdV – German Association of Insured – believes Lindner’s reform fails to solve a central problem, and won’t have a real impact.
Contribution-based allowances, promotion of retirement provision, and stepping away from guarantees are positive points included in the draft bill, similar to the BdV’s “basic depot provision” idea, it added.
But the government has given up on the idea of introducing a public mandatory standard fund product, meaning that the main beneficiaries of the reform will be those who are well informed and can master challenges, the association said.
“A publicly organised standard product would also have helped those who have real concerns about money and retirement planning. Where can they find orientation and advice?” Rehmke added.
The problem is that even after the reform, only expensive products with high fees will likely be on the market, Niels Nauhauser, head of the retirement provisions department at the consumer association in Baden-Württemberg – Verbraucherzentrale Baden-Württemberg – told Der Spiegel magazine.
The German Association of Actuaries (DAV) believes the bill needs improvement on several points. Two levels of guarantees on contributions paid – 100 or 80% – expand investment opportunities for savers.
The logical consequence is to extend this option to company pension schemes, DAV’s chair Maximilian Happacher told IPE.
According to the reform proposal, a private pension plan must ensure a payout at least until the age of 85.
“And then what? This question remains unanswered. At least half of the people live until they are older than 85, many even significantly older. If there is no more money, the pensioners affected will be left empty-handed — we are talking about several million people here,” Happacher added.
Only lifelong payments backed up by a collective protection mechanism can protect people living longer, and therefore only appropriate products should be eligible for funding, according to the actuaries.
For DAV, the draft bill won’t create a framework for more competition among providers, especially if looking at the option of switching products during the savings phase.
“It means that capital can be withdrawn from existing contracts after five years. This makes long-term investments by insurance companies, which are needed, for example, for the climate-neutral transformation [of the economy], impossible, hitting return opportunities for customers,” Happacher said.
The possibility of withdrawing capital weakens solidarity mechanisms as a hedging factor.
The draft does not address minimising bureaucracy with, for example, the pension product information centre (PIA) that will be replaced by other mechanisms.
“[PIA] has made a significant contribution to the comparability of subsidised pension products. It is not expected that this will result in any bureaucratic relief — quite the opposite,” Happacher said.
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