The German Association of Actuaries (DAV) and the Institute of Pension Actuaries (IVS) have warned that the extension of state support to retirement products with an expiry date in the payout phase in the country’s draft private pension bill (Referentenentwurf zur Reform der privaten Altersvorsorge) is “extremely problematic”.

This is because, the associations noted, a crucial part of retirement provision is that, during the payout phase, the “financing of the standard of living is secured until death, with flexible options available to suit individual circumstances”.

The draft bill was published by the German Federal Ministry of Finance (BMF) on 1 December 2025.

It aims to overhaul Germany’s tax-privileged private pension system by simplifying and standardising the current framework, reducing costs, and making subsidised private provision more attractive to a broader range of savers.

Overall, the DAV and IVS presented a “mixed assessment” of the draft bill, acknowledging that on the one hand it creates incentives to make private pension provision more attractive, but they pointed to “structural weaknesses” that could impair long-term financial security in old age.

In particular, they warned that plans to offer state support to products not offering lifetime payouts, instead with a minimum age of 85, do not offer any security of living standards until the pensioner's death.

“The question remains as to what means will be used to provide old-age security after [age 85]. At least half of all people live to be older than 85, and many even significantly older (cf. data from the Federal Statistical Office; both cohort mortality tables V1 and V2),” the two associations wrote.

They said several million people could be impacted by this.

“Only a lifelong payment stream secured by a collective can protect against this. Therefore, only appropriate products should be eligible for support,” they said.

The two associations welcomed provisions in the draft that would allow pension savers in the payout phase to benefit from capital market returns while continuing to receive stable, lifelong payments based on a guaranteed base amount.

Under the proposal, part of the capital available at the start of the payout phase could be invested in the capital markets, with the associated costs and risks borne by the contractual provider.

According to the associations, collective security systems designed and managed by actuaries are particularly well-suited to efficiently combine lifelong income security with individual participation in capital market returns.

They argued that the reform should go further than the current draft by extending the regulatory framework to include so-called dynamic, capital-market-based pensions, enabling a more flexible structure of the payout phase in line with this approach.

At the same time, the associations stressed the need for safeguards, calling for a requirement that total pension payments must not fall below a defined percentage of the initial pension level throughout the entire payout phase.

In addition, the two associations raised concerns about the ability to switch providers free of charge after five years during the savings phase. They warned that this would make long-term investments “impossible”, reducing the chances of profitable capital investment and, consequently, higher pension payments for customers.

“This is also a problem for society as a whole, because these long-term investments are needed, among other things, for the climate-neutral restructuring of the economy,” they stated.

Therefore, the associations have proposed that the options for switching be designed in such a way that these consequences are avoided or at least mitigated. One option put forward by the DAV and IVS is to allow switching for future contributions, to allow the long-term investment of past contributions to continue to work in the interests of contributors.

Furthermore, the associations said the proposal to introduce two guarantee levels, covering either 100 per cent or 80 per cent of contributions paid into guaranteed products with a contribution-maintenance commitment, represents a sensible extension of the existing framework.

The planned amendment would, in their view, give savers a manageable way to increase exposure to capital market returns. Products with a lower guarantee level could allocate a larger share of assets to equities and other growth assets, making return opportunities more tangible for contributors while still providing a stabilising effect over the savings phase.

They argued that these benefits would be further enhanced if a third guarantee level of 60 per cent of contributions were also permitted for guaranteed products. This would broaden choice without undermining security, as savers with a stronger preference for certainty would still be able to opt for products offering a full 100 per cent contribution guarantee.

At the same time, the associations stressed that long-term retirement planning requires savings to be invested profitably and supported by stabilisation mechanisms throughout the accumulation phase to cushion potential capital market volatility.

Against this backdrop, they criticised plans for a widely accessible standard deposit account without any guarantees, arguing that a minimum guarantee of 60 per cent of contributions at the end of the savings phase would be more appropriate.

A non-guaranteed standard product, they warned, could suffer significant capital losses in the event of a market crisis, potentially undermining confidence in state-subsidised private pension provision more broadly.

While the regulation relates to private pensions, the associations warned of implications for occupational pension schemes. They pointed to proposed changes to the Income Tax Act, under which occupational pension contributions would in future also cover arrangements that mirror the rules for certified private pension products.

Under these provisions, schemes would be required to ensure that all capital available at the start of the payout phase is converted into a lifelong annuity, or into a drawdown arrangement that must be followed by a partial annuity from no later than age 85. The associations cautioned that this could significantly affect the design and flexibility of occupational pension schemes.

The associations welcomed that the draft bill for occupational pension schemes largely maintains the principle that pension capital must be converted into lifelong benefits, with any payout plans ending in an annuity by age 85 at the latest.

However, they argued that this approach should apply not only to guaranteed products but also to non-guaranteed standard pension deposits, in order to improve consistency across funded pension pillars.

In addition, they stressed that while occupational and private pension schemes must remain institutionally separate, occupational schemes eligible for tax subsidies should not be disadvantaged in terms of benefit design.

At the same time, they cautioned that proposed switching and transfer options under the private pension reform should not apply to occupational pension schemes or allow transfers between the two pillars.

Finally, the associations raised concerns over plans to abolish the Product Information Centre for Retirement Provision (PIA), warning that no adequate replacement has been set out in the draft bill.

They said the PIA has played a central role in improving the comparability and transparency of subsidised pension products, notably through standardised risk, return and cost metrics, which the proposed new customer information framework does not yet replicate.

They also cautioned that scrapping the PIA would undermine existing industry standards, including those used by insurers to demonstrate value for money to supervisors, weakening consumer protection and reducing the consistency of pension product disclosures.

Overall, the associations argued that the proposed changes risk increasing complexity without reducing bureaucracy or improving the quality of information available to savers.

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