A new article from financial services giant WTW has taken an in-depth look at Germany’s proposed pensions reforms, saying that the current draft act is ‘notable’ for the areas not covered by the proposed legislation.

Writing on the firm’s website, Dr Michael Karst, head of funding vehicles retirement in Germany, and Hanne Borst, managing director and head of retirement for Germany and Austria, wrote that attention is needed by workplaces on what could eventually be put in place.

The act, which is currently out for consideration between the various government ministries, is set to be adopted by the cabinet at the end of month before being sent to parliament.

Karst and Borst wrote: “The draft act is also notable for the topics that are absent, such as measures to promote conventional company retirement plans. Employers should monitor the legislative process and prepare to review their occupational pension and deferred compensation policies.”

There are, the two write, several things covered under the draft act that would impact on current pension provision.

These include:

1) The allowing of third-party companies, not bound by relevant collective agreements, to participate on the basis of a specific collective agreement in “pure” defined contribution retirement plans arranged under the Sozialpartnermodell. This would also be subject to the approval of the collective partnering bodies that manage the same model. Third parties could also be required to contribute towards costs.

2) The permitting of employers to establish deferred compensation plans in which to automatically enrol employees, with an employer matching contribution of at least 20 per cent.

3) The allowing of occupation plans to pay out benefits early for claimants who are receiving a partial state retirement pension. Currently, occupational pension plan benefits may only be paid if the claimant is receiving a full state pension.

4) Increasing the government subsidy of pension contributions for low-paid employees in occupational retirement plans.

5) Allowing pension funds to underfinance their liabilities temporarily by up to 10 per cent, subject to requirements.

6) Permitting pension funds to pay out benefits in installments.

At the end of June, WTW released an initial assessment of the proposed legislative changes. It is, along with Deloitte, one of the firms who have been forthright in assessing and critiquing the proposals.

WTW said at that point: “As expected, it is amending legislation that only addresses a few important points. The improvements to the social partner model are positive, facilitating the wider use of this instrument in practice.”

WTW was broadly supportive of the improvements in low-income support, saying that they were an important step towards improvement and deserve recognition.

It added: “The changes in this area have the potential to once again bring a clear push towards this element of promoting precisely those employees, which was introduced for the first time by the BRSG, for whom deferred compensation is often not financially possible.”

WTW also praised the continued model of private and state pensions working together.

It concluded: “Finally, a central fundamental decision should be emphasized: the legislator continues to pursue the principle of voluntariness for company pension schemes and not an obligation – in view of the discussion around the BRSG in 2017 and despite the stagnating spread of company pension schemes since then, this is a remarkable offer to companies to once again take the spread of company pension schemes into their own hands on the newly created basis.”

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