Pensions experts propose further changes to Germany’s second pillar reform bill

Pensions experts have proposed changes to the draft bill to reform Germany’s second pillar pension system introduced by the government, now in the hands of associations, recommending looking into pension guarantees and promises, pension level, the social partner model, and employers’ contributions.

The second pillar reform proposed by the government, as expected, lacks a “big hit”, consultancy Deloitte said in an analysis of the proposal.

This is because legislators have not listened to suggestions from experts, for example to clarify the quantitative parameters used to calculate the equal value of company pension promises in the form of defined contribution commitments or as contribution promises with minimum benefits, it added.

According to Deloitte, changes are unlikely to happen in the next steps of the legislative process, because the ministries that have drafted the bill have already conducted “extensive consultations”.

At the end of June the bill was sent to associations, that now have until 25 July to comment on it. The draft is expected to be approved by the cabinet at the end of August, before the start of the next parliamentary discussions.

“The legislator did not focus on changes to the classic company pension plan,” said Michael Karst, retirement managing director at WTW Germany.

The draft bill could have mentioned changes to the level of guarantees on contributions paid for minimum benefits promised, he added.

The draft bill also misses the opportunity to adjust the level of pensions after inflation picked up in the last few years, burdening employers, forcing them to re-assess company pension benefits.

This would have a positive impact on existing rules on company pensions, and it would support employers wishing to continue to pay for company pension schemes, Karst added.

The reform opens up the social partner model to firms not bound by collective bargaining agreements, expands subsidies for occupational pension plans for low earners, and introduces an opting-out model for deferred compensation at company level, among other changes.

It flexes investment and funding rules for Pensionskassen that can invest 5% of security assets in infrastructure projects, and experience temporary underfunding of 10%.

The opting-out model may have the biggest impact on spreading occupational pensions, for company pensions combined with deferred compensation, Karst said.

On the social partner model, instead, the government failed to completely drift away from collective bargaining agreements, said aba, the occupational pension association.

The cabinet followed the association’s recommendations to lift the wage limit to benefit from a tax-deductible contribution from employers.

Increasing subsidies for company pensions, in addition to expanding and making wage limits more dynamic can help spread occupational plans, the union IG Metall said in a statement.

IG Metall also backs the idea of the “Soli-Rente-Plus”, allowing voluntary payments of members and employers in the first pillar scheme. 

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