13 September 2017

Investment & Pensions Europe: BRSG: DC plans to strengthen German system, says WTW

Thomas Jasper, head of occupational pensions at Willis Towers Watson for Western Europe, said the adoption of changes brought in under the Betriebsrentenstärkungsgesetz (BRSG) could change the country’s occupational pension landscape significantly. The law introducing DC plans will come into effect next year.

“If the new pension plans without guarantees get widely accepted, companies will have to set them up via funded vehicles,” Jasper said.

Direktzusagen pensions – in which benefits are paid directly from a company’s balance sheet rather than backed by financial assets – will in future only be allowed if employers grant a 0% guarantee.

At a recent conference the German supervisor BaFin has recently called on companies and unions to get in touch about how to set up the new vehicles and plans.

However, Jasper pointed out it will take time for the first plans to be up and running: “We do not think any new vehicles will be set up before autumn 2018 by the social partners.”

According to a survey held by WTW among German employees last year, the vast majority (72%) said they would be content to be enrolled into a pension plan with the possibility to opt out.

The BRSG also requires employers to pass on any savings they make on social contributions by paying parts of the wages directly into pension plans.

 “We expect this new legal requirement to create a new standard that would put pressure on all employers to pass on savings they make on social contributions when paying into pension plans rather than employees’ current accounts,” he said.

This would also mean employers that have set up the Entgeltumwandlung internally, including via book reserves, would have to make additional contributions to these plans. 

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