In January 2019, Germany’s Betriebsrentenstärkungsgesetz introduced legislation permitting pension funds without guarantees to be set up in Germany for the first time. These “pure” DC plans (Sozialpartnermodell) can only be created as part of a collective bargaining agreement (Tarifvertrag) between trade unions and employers and industry bodies, and are not mandatory. While no pure DC plans have been set up yet, discussions are underway between various trade unions, industry bodies and employers about the possibility of introducing these new plans.

Dr. Judith Kerschbaumer, Head of Social Policy at ver.di Bundesverwaltung and Kerstin Schminke, Political Secretary for Collective Bargaining Policy and Law at IG Metall presented at the roundtable on the current state of negotiations for their respective unions and the outlook for the introduction of the new DC plans.

Dr. Kerschbaumer reported that ver.di has been in negotiations on the first DC plans as part of individual company and industry-wide collective agreements for over a year. In particular, ver.di is in discussions on company-specific collective agreements for an insurance company and an energy company, as well as a collective agreement for the banking sector. In all these cases, the requests for the new DC plans were driven by employees and their desire for investment options with the opportunity to achieving higher returns on their pension savings. These negotiations are expected to be completed in early 2021.

Dr. Kerschbaumer emphasized that this is new territory for all parties involved in the discussions, and that a more complete set of legislative requirements for this new type of plan would have been helpful. She noted that there is great deal of respect for this initiative and trade unions are very aware of the reputational risk they run in supporting the introduction of these plans.

As part of their negotiations of collective agreements for the new DC plans, ver.di have identified seven requirements they wish to see met:

1. ver.di will only consider those employers as partners for a new DC plan who provide their own employees with an employer-financed occupational pension in excess of the mandatory contribution of the social security savings where employees have chosen to exchange part of their pay for pension contributions (i.e. salary sacrifice). A substantial employer contribution must be provided.
2. The employer’s contribution rate must include an element of compensation for the loss of the employer guarantee.
3. The new DC plan must not lead to a deterioration or replacement of existing occupational pension plans.
4. The plan’s investments must comply with ecological, ethical and social sustainability criteria, so-called ESG criteria.
5. The DC plan design should accommodate the financial incentives (e.g. Niedrigverdiener- und Zulagenförderung) offered by the government to encourage pension savings.
6. Collaboration between the parties and involvement of the trade unions in the implementation and governance of the new DC plans is critical for ver.di.
7. The requirement that the new DC plans can only be set up as part of a collective bargaining agreement must be retained

Ms Schminke reported that IG Metall has been in talks on the new DC plans since the 2018 round of collective bargaining. At IG Metall’s 2019 trade union conference, it was agreed that a 100% guarantee must be given if an occupational pension plan were exchanged for pay increases. IG Metall’s main criterion for setting up new DC plans is that they must be employer-financed, and not solely financed by employees through salary sacrifice.

The new DC plans are not expected to be a discussion point in the next round of collective bargaining. In view of the challenges facing the metal industry currently, employment and structural issues will be at the heart of forthcoming collective bargaining negotiations. Therefore, IG Metall will be a little way behind ver.di when it comes to considering issues associated with the new DC plans.

Fundamentally, IG Metall is of the opinion that occupational pension plans represent a supplement to state pension benefits and should be financed by employers.

Participants at the roundtable commented that with continuing low returns on existing funded pension products (with guarantees), this new model could provide an interesting alternative for both employees and employers. By introducing a type of plan where the employer is not responsible for guaranteeing minimum benefits or investment returns, small and medium-sized employers, in particular, may also be more willing to offer occupational pension benefits to their employees. Communication with employees will be critical in helping them understand these new plans, as will introducing appropriate governance frameworks to manage these plans going forward. We look forward to seeing these new DC plans develop over the coming years.