A draft bill on reforming Germany’s third-pillar pension system is likely to cause “lasting damage” to occupational pension provision, according to the German pension association Arbeitsgemeinschaft für betriebliche Altersversorgung e.V.(aba).

In a statement on the pAV Reform Act, aba also criticised the country’s Federal Ministry of Finance (BMF) for publishing the draft bill for consultation on 30 September, more than 14 months since the publication of the focus group’s final report, and giving less than three weeks for comments.

“In our opinion, the issues raised by the Federal Ministry of Finance's (BMF) draft bill for the pAV reform act, the potential impact on occupational pension schemes and the balance between the three pillars of pension provision are extremely complex,” the aba’s statement read.

The aba further criticised the BMF for missing the opportunity to take stock and define the objectives of the three pension pillars.

“As a result, the BMF's draft bill shows little or no interlinking with the other pillars and therefore does not contribute to advancing a cross-pillar overall concept for old-age provision. For private pension provision, products are to be subsidised which, from the pensioners' perspective, can be significantly more flexible and profitable than the current framework conditions of occupational pension provision allow,” the association stated.

It is this aspect that the aba believes is likely to “cause lasting damage to occupational pension provision and counteract the expansion of occupational pension provision envisaged by the federal government”.

The aba has therefore urged the federal government to set consistent incentives and messages for the necessary expansion of funded pension provision. Currently, it believes the draft bill raises several fundamental questions.

“How does the more than three times higher level of support for this longer-term capital formation – compared to the government draft for the Second Company Pension Strengthening Act (2. BRSG) – relate to the federal government's objective of expanding company pension schemes, in particular by further developing the social partner model?,” the aba questioned.

Furthermore, it said the current BMF draft bill also provides for a subsidy for products with a payout plan that ends at the age of 85. This form of payout can be quite attractive to many people at the start of benefits. However, it is accepted that people at an advanced age, i.e. at a time when they can no longer take countermeasures, may be exposed to an increased risk of poverty in old age and require state support.
“Financial risks are thus transferred to future taxpayers, while unused pension capital can be generously bequeathed – unlike in the case of occupational pension schemes. We consider this to be critical from a socio-political point of view in the case of a widespread decision in favour of this form of payment, especially as the future funding is intended to reach the entire population,” it stated.

Although the aba welcomed the planned increase in the maximum amount of special expenses and, in principle, the new subsidisation system, which can also be used for existing Riester occupational pension contracts, it suggested that the new subsidy system be reviewed with regard to the gender pension gap.

“Unnecessary further complexity in occupational pension schemes must be avoided and legal clarity created,” the association said.

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