The reform of the third pillar pension system (Riester-Rente) drafted by the German finance ministry will likely cause lasting damage to company pensions, according to the occupational pensions association aba.
In a statement referring to the finance ministry’s draft bill, aba pointed the finger at the new framework for private pensions allowing flexible and lower guarantees on contributions paid, and the inheritance of unused pension capital, to explain why it can damage the spread of occupational pensions in the future.
“We regret that an opportunity was once again missed to define the goals of the three pillar pension [systems]. The draft bill of the finance ministry shows it does not contribute to advancing an overall concept for cross-pillar old-age provisions [in Germany],” aba added in the statement.
The three reforms running in parallel – Rentenpaket II in the first pillar, the second company strengthening act in the second pillar, and the third pillar retirement savings account (Altersvorsorgedepot) – “are not adequately interconnected”, the association noted.
Germany aims to spread occupational pensions through social partner models opened also to companies not necessarily bound to collective bargaining agreements, offering defined contribution (DC) pension plans with lower guarantees.
Only 15% of German companies back actions to further strengthen the country’s social partner model with its pure DC plans to further spread company pensions among employees, according to the survey Future of Pensions conducted by WTW.
Company pension provision “must be prioritised” to strengthen capital-funded pension provision in Germany, aba said.
The association also complained to the ministry about the fact that annual funds from the national budget of €515m are being deployed for the reform of private pensions, while only €155m for the upcoming reform of company pension schemes.
The draft bill on the third pillar reform also raises the question of whether it is an attempt from the government to promote essentially long-term wealth creation, with higher starting benefits and payout plans ending at the age of 85, the association added.
Aba has welcomed instead a possible increase foreseen in the draft bill of the maximum amount of contributions considered as special expense, and the new system of subsidies also applying to existing Riester-Rente company pensions.
“We [however] suggest reviewing the new subsidy system with regard to the gender pensions gap. Unnecessary further complexity in company pension provision must be avoided and legal clarity must be created,” aba said.
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