Germany Update - September 2017
by Alexander Beard, on Sep 27, 2017 7:22:10 AM
For the first time since WW II we will have a party in parliament right of the Christian Democrats (Conservatives): AfD “Alternative for Germany” (which in fact is not one!).
However I don’t see it so much dangerous, as the voters for this “anti” party did not really have a program, they just needed to open their arms in order to collect all those who felt lost in previous decades with all those changes. The World’s system of stable Russian- US – split has disappeared: China and India willingly playing a stronger role in World politics being followed by Africa from 2050/ 2060 onwards.
Demography – our core topic – is changing the World as well as technology. First time in history we see a generation growing up where parents don’t think that their children will have a better place to live in that the parents themselves.
Our politicians should reach out for these huge changes instead of small attacks amongst each other. Even Europe as a pool of independent countries, with the same core values, will lose influence on World politics, on World trade and World economic growth- even less a single country like France, the UK or Germany.
However in our view, there will be the need for further changes in our pension system, mainly as a 3-pillar-system, containing a pay-as-you-go state pension (level 3-2-1: gross income/net income/state pension level) and employee benefits, plus private additional pension.
Recently, AON Hewitt has launched the result of a survey from employees, being asked about the quality of an EB pension.
The study shows that employees in Germany are still very much driven by risk averting strategies: 53% of people above age 55 prefer security more than performance! Only 41% of the young employees (up to age 25) are willing to increase the risk in their investments.
There is a lot of space for improvement! More information and more room for wider investment strategies that will show that equities will have more likely a better performance than state bonds without having a higher risk, as long as there will be enough time and a wide spread of investment portfolios in terms of regions and sectors.
However more and more people turn from a single trust in social security in an acceptance for using all 3 pillars! The recently launched new law, called “Betriebsrentenstärkungsgesetz” (a typical long German word! “Law for making EB pensions stronger”), is also trying to move more people into second pillar as an addition to social security pensions. It is not yet obligatory to enroll all employees automatically into an employee benefit system (compared to UK 2012), nevertheless it is voluntarily put into a legal framework, as long as employers will also match into the system of salary sacrifice (salary conversion/ deferred income).
The new law will be put into effort from 2018, Jan 1st onwards. The law has mainly 3 different groups of people in focus:
- Employees in industrial sectors with huge companies, where trade unions and employer’s associations will negotiate new remuneration packages and will “automatically” have an EB system put in place as well.
- Employers with employees in sectors with very low earnings (up to € 24,000 p.a.). These employers will get a 30% subsidy (“BAV-Förderbetrag”) from state as long as they will launch new EB pensions to these employees (there are special terms & conditions).
- For all employees the new law has advantages too. Employers will be obliged to match individual contributions from employees by 15% (as long as these employees will have annual income below social security contribution ceiling (2017: € 76,200). For employees above this threshold the frame for tax deferred contributions will be lifted from 4% to 8% (of SSCC € 76,000 p.a.).
All in all employers will have several options to optimize their remuneration packages for all of their employees and it is expected that the number of employees with an EB pension will further increase, especially for employees with earnings below the threshold of € 76,200 p.a. The provision for managers is already now on a reasonably good level in Germany, as managers themselves are often in a better position to negotiate good packages with their employers in times of skills shortage. Not all employers have had the time to go through all the options or have their own expertise and skills in different subjects. For all of these employers, it will make sense to get advice from their consultants that are not linked to any bank or insurance driven sales force!
Also, Disability Pensions and additional Health Care are getting more and more common practice in German companies. Different strategies will be needed to step up to the plate of skills shortage, in many fields of former German number one ranked industries and sectors. Without being innovative companies will neither be able to recruit new skilled staff members nor retain them. Money (=salary) is important, however it’s not the only condition for employees to apply for a new job!
Country Manager - Germany (AB International Benefits B.V.)