A draft law passed in the past few days could “revolutionise” private pension provision in Germany, the country’s fund association says.
The reforms clear a path for flexible savings and payout models, and potentially higher returns for savers.
“This is a major step forward and represents a paradigm shift in private pensions,” said Thomas Richter, CEO of the BVI. “The previous, globally long-outdated mantra that pension plans must include a 100% contribution guarantee and a life annuity is no longer valid. This is revolutionary and makes pensions more attractive for savers, as they can invest in higher-yielding options.”
The draft law includes a state-subsidised pension savings account, which can, among other things, be funded with investment funds.
The legal obligation for guarantees and annuitisation is eliminated, which the BVI said were expensive and reduced savers’ returns.
An important step, said the BVI, is the freedom of choice during the payout phase. In the future, individuals will be able to plan the retirement phase according to their individual needs and choose between a fund withdrawal plan, a so-called ’Fondsrente’, and an annuity insurance.
Thomas Richter added: “This draft law paves the way for more flexible saving and payout models. Citizens finally have freedom of choice instead of legal compulsion. This makes pensions attractive to them. Germany needs a widespread adoption of subsidised pension products. Therefore, the offers must be appealing.”
He said the federal government should now swiftly pass the draft law so that a future-proof pension system can be implemented before next year’s federal election.
“Germany cannot afford another legislative period without reforming private pensions.”
The news will likely be welcome to senior asset management executives who, along with Richter, took part in a roundtable in the summer, where they discuss shortcoming of the pensions system. Read here.
