The German Federal Association for Investment and Asset Management (BVI) recently issued a plea for investment funds to play a greater role in occupational pension provision after an influential committee of MPs indicated a desire to encourage more competition. But the country is split on the plans

A grouping of 84 investment and asset management funds, including the German subsidiaries of international heavyweights such as HSBC, BNY Mellon and Allianz, recently made a pitch, in a press release entitled Away with a false sense of security, Long-term saving must be rewarded' (datedFebruary 2011)to allow them to be able to do business on a level footing with insurance firms when it comes to retirement savings.

The BVI are appealing for investment funds to be able to compete with insurers in offering 'direct insurance' products, one of the five funding vehicles of Germany's complex occupational pensions landscape (along with direct pension promises that many employers support via pensionskasse, pension funds and support funds.)

BVI Chief Executive Thomas Richter advocates a "rethink" of a system in which he sees "the security of a short-term guarantee making it sure in the long-term that appropriate pension provision will be lacking". Complaining to Pension Funds Insider about the "monopoly of insurers" in the fifth funding vehicle, Richter claimed his group's proposals "can make it easier for the 8 million workers at the 90% of German companies that employ less than 20 workers to access occupational pension schemes."

The 'direct insurance' funding vehicle is naturally the most appealing for smaller firms due to the readily available external management of contributions that it offers. Direct insurance options are currently purchased by employers and later returns collected by workers upon retirement – they take an 11% share in the occupational pensions market (a sizeable amount in the share of the externally managed market, with 55% of pensions paid straight out of company accounts via direct promises.)

A competitive offering of so-called pension special assets funds would be preferred by workers to insurance-provided direct insurance, insists Richter: "yields are higher from investment funds than life insurance schemes, and we need these yields to mend a gap in the German pension system."

Richter added his support to recent proposals of the Christian Democratic Union (Angela Merkel's major party of the governing coalition) to act on promises of pension reform made in their coalition agreement: "We welcome the plans of the CDU/CSU to make private pension provision more attractive with greater competition".

The BVI echoed a pair of recommendations contained in a recent CDU/CSU communiqu?©. Firstly, for investment funds to be allowed to benefit from an extension of the so-called '12/60 rule' that allows benefits from 'direct insurance' schemes with insurance companies to be collected with sizeable tax advantages (if the scheme has been subscribed to for twelve years once the member is over 60).

The second CDU/CSU recommendation supported by the BVI concerns the raising of the limit in state subsidies for an individual supplementary pension from €2,100 to €2,640, and tying this limit to the floating upper contribution limit. Richter said: "This would be a clear signal from the German government to private pension providers and would relieve the national budget of having to provide aid in the long term."

Klaus-Peter Flosbach, Finance Spokesman for the CDU/CSU recently said that it was the party's goal to "devise means to make entering into the private pension market more attractive. We want to boost incentives to private pension saving through flexibility and improvement in the current system."

"We are trying to put a bill in motion before the end of the year to improvement tax incentives for private pension saving," added Flosbach.

Resistance

Opposition figures and German insurers, however, have scathed the proposals.

Nicolette Kressl, Flosbach's opposite number as Finance Spokeswoman for the left-of-centre SPD, said: "The changes to private pension provision proposed by the CDU/CSU miss the target and are not intended to do anything other than subsidise private investment through tax incentives. Such investment products do not guarantee with ample certainty that the money saved will later be converted into a pension."

Una Grossmann, a spokeswoman for the German Insurance Association (GDV), also criticised the plans to Pension Funds Insider: "Legislating for investment products to be incentivised would give the wrong signal and go against the important social matter of safeguarding age-related risks.

"It would not only lead to increased tax outlaws but socially it would not be acceptable to disadvantage, without an objective reason, pension products like life insurance that offer long-term guarantees to their customers; for example like a guaranteed minimum payment and death cover. In our view it is not useful to treat pure saving products in the same way as pension provisions that have genuine contractually-agreed long-term commitments."

The one point of agreement between the Insurance Association and Association for Investment and Asset Management is on the idea to raise the subsidy cap, and Grossmann has welcomed "dynamic adaptations that are the only way to close growing gaps in pension provisions against the depletory pressure of inflation".

But further agreement between the parties may be hard to reach.

dbillingham@wilmington.co.uk