18.09.2013
Key Positions

Old Age Provision

A decade after the Riester reforms, public opinion in Germany favors pay-as-you-go pension insurance. Under the weight of the debate about poverty in old age and the declining benefits from pension for diminished earnings capacity, nearly all parties are planning for higher benefits from the statutory pension insurance scheme, not least because the sound performance of the economy is currently increasing revenues for the statutory scheme.

In addition to expedient approaches for making the transition to retirement more flexible and for improving pension for diminished earnings capacity and the rehabilitation budget, measures are also being discussed to increase the value of pensions held by low income earners and women. Whether lifelong benefits or guaranteed, single or supplementary pensions—common to all pension concepts of all parties is the notion of providing some insured persons higher benefits without corresponding consideration. This raises the question about the proper balance of payments into and from the system.

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If the current rather low level of poverty in old age in fact increases in the future, the cause will not be the pension system but negative developments in the labor market. Women, persons with insufficient qualifications or migratory backgrounds and persons who have been unemployed for extended periods run the greatest risk of experiencing poverty in their old age. It therefore makes sense to remedy the causes of these poverty risks by promoting prevention and strengthening growth and employment through sound economic policy. Making it easy to obtain qualifications and integrate into the labor market (also through better day care possibilities for children) is the best ways to accomplish this.

Responsible pension policy inevitably must include a realistic assessment of the claims that can be fulfilled by the state. The benefit commitments of the statutory pension insurance scheme form part of these claims. since the riester reforms, nothing has changed regarding the long-term perspective for financing old age provision in Germany: demographic development is still the key. Longer life expectancies and persistently low birth rates make it necessary to consider pension policy.

After a good 10 years of Riester reforms, the task today is to carefully expand the established multi-pillar model of old age provision in which a combination of statutory, occupational and private pension affords a comfortable level of retirement income. This must include a taking of inventories and an evaluation of capital-backed insurance. The initial strong growth in occupational pension has flattened out in recent years. The number of Riester contracts has recently only slightly increased. Low earners are still not taking advantage of the opportunities to additionally save for their old age.

Our Positions
Riester pensions are the right instrument …
The organised polemics against the riester pension are exaggerated and jeopardise the further dissemination of this effective form of provision. The Riester pension combines the buildup of individual retirement assets with attractive funding, and provides private asset protection and a variety of optional structures. Not including the funded portion, Riester pensions with profit shares yield 3.4 per cent for men and 3.8 per cent for women, even according to critics. Riester pensions are therefore worthwhile assuming a normal life expectancy.
… but still can be improved
Well conceived, uniform key information documents for funded pension products increase their transparency, simplifying decisions. The Old Age Provision Improvement Act should therefore be implemented soon. Particularly attention must be paid to the presentation of price-benefit relations. Costs alone, without consideration of future benefits, do not provide sufficient orientation. Moreover, the legislator should not assign priority to real estate funding over actual pension when making changes to Riester pensions.
Contemporary development of funding
The debate over work histories with frequent changes of status has shown that the group of persons eligible for the Riester pension should be extended to include self-employed persons. Riester pensions should moreover be dynamised and the contribution framework should be extended. In addition, an amount of the exemption should be created for own provisions to the basic social security, so that low earners will be able to glean an advantage from their provision in all cases.
The funding of occupational pension must be expanded in order to lend new impetus to its dissemination. Tax-free pension contributions should also not be subject to social security insurance contributions. To accompany changes in the forms of gainful activity that demand a high degree of flexibility on the part of workers, unused funded volumes of occupational pension should be able to be carried forward to subsequent years.
Avoid mistakes in supplementary contributions to the statutory pension insurance scheme and government pension accounts
Consensus exists among the parties to promote the further dissemination of occupational pension, particularly in small and medium-sized enterprises. Whoever takes this task seriously should not introduce voluntary supplementary contributions from workers and employers to the statutory pension insurance scheme. This would not only increase the implicit government indebtedness but would jeopardise the status achieved by occupational pension, because incentives for individual insurance would be undermined. It would be just as mistaken for the state to allow itself to be drawn into taking direct responsibility for private insurance as a provider of pension accounts.
Enable cross-pillar information on pension
Income from all three pillars of old age provision is decisive for financial situation in old age. As of now, however, Germans are not given a general overview of their various claims. each pillar provides separate information. Providing cross-pillar information on pension would make it clearer to people what total benefits they can expect in the future. Potential gaps in coverage could thus be identified at a glance. To do so, it would be necessary to establish an IT platform, such as already exists e.g. in Denmark. Obstacles in terms of data protection law must be overcome in a dialogue between policymakers, data protection authorities and providers.