GERMANY - Industry professionals in the German pensions market are calling for the government to put compulsion on its agenda.
The relatively slow take up of the Riester products – Riesterrente – introduced under the legislative reforms in 2001, has prompted calls for more measures to increase private pension savings.
In spite of a poor response to Riesterrente products, the reform has raised awareness among Germans that the state will not be able in future to fund pensions to the degree it has in the past. But in the current economic difficulties Germans are unwilling, or unable, to pay more into private pensions.
Both government and opposition, officially, are against compulsion, hoping that in the end voluntary provision will fill the pensions gap.
But against this background many within the finance and pensions industry feel compulsion is the ultimate tool to make it happen.
Martin Theisinger, managing director for Germany for Schroders, said: “I think the compulsion needs to come into place. We have gone out and said there is this gap between what you save and what you need. The state scheme isn’t sufficient. Your employer probably won’t help you either, so do something on your own, but we haven’t yet found the secret to make it happen.”
A simplification of Riesterrente products in the new year could, it is hoped, kickstart sales.
“If this won’t work to get more people to join the system, then there might be considerations to have a kind of compulsory mechanism implemented, with people being forced to join the system,” said Michael Freisberg, managing partner at Towers Perrin.The reform of the healthcare system could prove a model for pensions reform.
The opposition is proposing that the burden of contribution which falls on employers be transferred to the employee.
The same arguments could be used for financing pensions, said Christian Mosel, director of Commerzbank Asset Management.
“The government and opposition are quite clear there needs to be a decoupling from the wage cost the cost of the healthcare system. It wouldn’t be a big surprise to me to have the same discussion when it comes to the pension system. That would ultimately mean there is a compulsory element in the PAYG, but we also add a funded compulsory element to that.”
A ministry of social affairs spokeswoman denied there were any plans to make contributions into private plans compulsory: “There are many other ways to save for retirement, either through a fund or maybe your employer offers you something. People already have to pay into the government’s retirement insurance scheme; you cannot say to them you have to pay more.”
The opposition CDU is even more vehemently against compulsion. “Individuals can maketheir own choices,” said a spokesman. But he said demographic changes and the effects on pensions were an issue for the party.
“Society is getting older and the cost of pensions is getting higher. People are quitting at 55. People will have to work longer.”
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