The German government is targeting a comprehensive reform of all the three pension system pillars during what it considers a turning point in history – Zeitwende – with high inflation, possible recession, changes in economic policies and demographic pressures.

Speaking at the Handelsblatt occupational pension forum in Berlin today, Florian Toncar, parliamentary state secretary at the Ministry of Finance, said that the government will strengthen the capital funded components in all three pension system pillars, with the first pillar having priority on the political agenda in the near future.

In the first pillar the cabinet will start the Aktienrente – statutory equity pension – with the state setting up a fund within the first pillar system to invest assets globally.

The reform of the first pillar aims to stabilise the level of pensions and contributions starting from 2030 against demographic pressures.

“It has been agreed within the government that promptly will be submitted a proposal for a law in connection with other pension policy projects of the [government] coalition and [this] will happen this winter […] The Aktienrente is one of the most important steps to stabilise statutory pensions,” Toncar said.

The second pillar occupation pension system will change in the direction of opening up opportunities for higher returns. The government has started discussions with social partners, associations and academics to push changes forward lasting until mid November.

“The social partner model is also attractive for employers that have not yet engaged with occupational pensions,” Toncar said, adding that the principle ‘pay and forget’ embedded in the model should spread further in occupational pensions.

Rolf Schmachtenberg, state secretary in the Ministry of Labour and Social Affairs, added during the event that following the conclusion of such discussions, the plan will be to lay out a reform package next year.

The government intends to assess the possibility of opening up the social partner model to companies that are not part of collective bargaining agreements, he said.

Third pillar politically challenging
According to Toncar, the reform of the third pillar private pension system is the most challenging for the government politically, because of the large offer of products and providers competing in the market.

“We have to completely shift away from guarantees in the public subsidised old-age provisions and particularly in the Riester-Rente,” he said.

The government coalition is also assessing the possibility to set up a public fund with an opting-out clause within the third pillar.

Toncar warned, however, of the risk of mixing up the changes in the first pillar, with the fund set up within the statutory pension system, and the third pillar, where there is an “enormous variety of products”.

He added that the government will soon start to assess possible reforms within the third pillar system, and also discuss the possibility of adding other investment products on top of the classic Riester-Rente.

Other third pillar products, according to Schmachtenberg, also include the pan-European Personal Pension Product (PEPP).

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