The German Stock Institute (DAI) has called for reform in the occupational pensions sector, warning that its potential remained “largely untapped” in Germany due to complexity and cost.

Reform recommendations included auto-enrolment, greater investment in equities, the extension of the planned pension savings account, and targeted tax incentives.

It noted that while the pay-as-you-go first pillar system and third pillar private pension provision were the focus of political debate, the second pillar of occupational pensions had received less attention.

The DAI argued that with greater use of equities and therefore potential higher return opportunities, the occupational pensions sector could become a key pillar of the German pension system.

It analysed the occupational pension models in France and Germany and outlined recommendations for action to secure pension income.

The study highlighted that the number of contracts in French occupational pension schemes had increased by 36 per cent since the introduction of its Plan D'épargne Retraite, which made it possible to merge existing products and transfer them from one employer to the next.

The DAI said the pillar one system needed to be supplemented by equity-orientated measures, as investment in equities in a broadly diversified, long-term, and sustained manner was “not being utilised”.

It therefore called for the occupational pension product range in Germany to be simplified to enable low-threshold access, and for the pension savings account planned as part of the reform to private pensions to be extended to occupational pensions.

To improve returns and increase pension income, the DAI recommended the inclusion of non-guaranteed products in occupational pension schemes.

For occupational pension schemes to be more attractive for low-income workers, the organisation called for the introduction of a minimum subsidy in the form of a lump sum, amounting to at least 2 per cent of the contribution assessment ceiling, and the doubling of tax-free contributions.

It also recommended the strengthening of capital-forming benefits (VL) by abolishing income limits, tripling the employee savings allowance, and making income from VLs tax free.

Automatic enrolment for ‘broad sections’ of the workforce in share-based schemes was also proposed, with the right to opt-out, alongside a minimum share quota of 60 per cent when concluding a pension plan contract in an occupational scheme that is reduced within the framework of lifecycle models upon retirement.

"Occupational pensions need an update,” said DAI chief executive and board member, Henriette Peucker.

“Their potential remains largely untapped in Germany because they are too complicated and too expensive.

“Anyone who wants to help occupational pension schemes achieve a breakthrough cannot ignore non-guaranteed products that enable greater use of equities and thus higher returns.

“If the planned pension savings account is opened up to the second pillar, pension entitlements can be easily transferred when changing employers. This could be a turning point for occupational pension schemes.

“Together with the automatic inclusion of employees in a company pension scheme, provided they do not object, targeted tax incentives and a minimum equity quota of 60 per cent, as has proven successful with capital-forming benefits, this will result in an attractive system.”

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