The German Association of Actuaries (DAV) and the Institute of Pension Actuaries (IVS) have said they “continue to see a lack of a viable long-term vision for old-age provision” in the country’s pension reforms, following the passing of two pieces of legislation last week.

On Friday, 19 December, the Federal Council passed the Act on Stabilising Pension Levels and Full Equal Treatment of Child-Rearing Periods (Pension Package) and the Second Act on Strengthening Occupational Pension Provision and Amending Other Acts (Second Occupational Pension Strengthening Act).

Last week, the cabinet also initiated the Act on the Reform of Private Pension Provision.

DAV chairwoman, Susanna Adelhardt, stressed that pension provision “must reliably support people until the end of their lives”.

“The goal is pension payments, not the savings process. Reforms that do not directly contribute to this goal and sensibly combine all three pillars of pension provision, or even shift the burden to younger generations, have missed their mark,” she stated.

Regarding the pension package, the DAV and IVS are particularly critical of the fact that the second step is being taken before the first.

"The pension package is a heavy burden," Adelhardt warned. "This is setting stakes that the newly established pension commission will not be able to avoid."

Therefore, the DAV and IVS said this makes it even more important to base reform decisions consistently on figures, data, facts and recognised actuarial principles, and in particular to take demographic developments into account.

The associations urged the country not to “shy away from painful corrections”.

Although they welcomed the greater openness to capital market-oriented investments in the savings phase, they see considerable risks in equating lifetime pensions with payout plans.

"State subsidies must not support individual savings products, but must be geared towards lifelong benefits," Adelhardt said.

The DAV and IVS have therefore called for subsidies to be consistently linked to lifelong payouts. At the same time, they advocated greater flexibility in the design of lifelong pensions – for example, through models that are characterised by both a clearly defined minimum level of protection and genuine participation in the capital market, with opportunities for returns and collectively buffered fluctuations.

The two associations also took a critical view of the planned switching options during the savings phase. These, they said, make it difficult to make long-term capital investments that cannot be liquidated at any time, especially investments in urgently needed infrastructure projects.

They explained that this reduces return opportunities, weakens risk sharing and makes it more difficult to finance future tasks.

Therefore, DAV and IVS recommended that switching options should only be allowed with effect for future contributions or at the end of the savings phase. Any costs incurred as a result must not be passed on to customers.

In addition, the DAV and IVS warned against failing to implement sensible new approaches in both occupational and private pension schemes. What is possible in private pension schemes must also be permissible in occupational pension schemes, and vice versa. From the perspective of the professional associations, a level playing field between the second and third pillars is absolutely essential.

IVS chairman, Stefan Oecking, said that although the BRSG II contains sensible approaches to the further development of occupational pension schemes from the perspective of the DAV and IVS, it falls short of the necessary scope of reform.

"The law is heading in the right direction, but it is not yet ambitious enough," Oecking said. "In order to strengthen occupational pension schemes in the long term, we need much more capital market orientation, fewer rigid guarantees and greater commitment in both the savings and pension phases."

Overall, the DAV and IVS warned against focusing solely on short-term political solutions. Instead, they said that only a consistently funded, cross-pillar pension system geared towards lifelong benefits can offset the effects of demographic change on statutory pensions and make a lasting contribution to maintaining the standard of living of citizens in old age.

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