Germany’s draft reform of tax-subsidised private pensions risks weakening occupational pension provision and reducing the use of deferred compensation, according to industry body aba.

In its response to the proposed Pension Reform Act (Altersvorsorgereformgesetz), the association said the government’s objective of strengthening retirement income through supplementary voluntary provision would not be achieved under the current draft law.

A key concern raised by the aba is the introduction of products offering payout plans only up to age 85. The association noted that around half of women and more than 30 per cent of men currently aged 67 are expected to live beyond that age, meaning the new products would not be able to maintain a pensioner’s standard of living in old age.

The association also warned that planned changes to guarantee requirements in private pensions, including the possibility of lower or no guarantees, could create an uneven playing field with occupational schemes, where such flexibility is largely unavailable outside of social partner models.

As a result, the aba expects some employees to favour the higher initial payouts offered by lower-guarantee products and finite payout plans, potentially redirecting savings away from occupational pensions rather than increasing overall participation.

“This would lead to a shift within pension provision, rather than broader coverage or growth,” the aba said.

Therefore, the aba called on the government to either refrain from opening subsidised private pension provision to low- or no-guarantee products, or clarify, following in-depth examination, whether comparable capital market-oriented designs could be introduced, at least for occupational pensions financed from net income.

“Both approaches raise significant labour law, supervisory, tax, and system-policy issues. These cannot be conclusively addressed within the current legislative process. Precisely for this reason, the legislator should not leave the issue unresolved but explicitly include it in the further work of the Pension Commission,” it stated.

More broadly, the association criticised the lack of a coherent, cross-pillar strategy for retirement provision in Germany, arguing that inconsistent incentives risk undermining the role of funded pensions.

While the aba welcomed efforts to simplify the subsidy framework, it cautioned that the changes would not benefit all groups equally and reiterated that pension provision should be viewed as more than pure wealth accumulation.

It also highlighted the strengths of occupational pensions’ collective approach, which can mitigate individual exposure to market volatility through risk-sharing, even where higher allocations to equities or alternative assets are involved.

---