Germany unveils its proposals to help more workers save for retirement by boosting pension plan coverage and allowing greater flexibility in company-provided plans.
Employer Action Code: Monitor
The government has finally released its long-awaited pension reform proposals under the draft Second Act to Strengthen Occupational Pensions (Zweites Betriebsrentenstärkungsgesetz). The main goal of the reforms is to extend coverage of occupational pension plans to the roughly half of the workforce that currently does not participate in such plans (Federal Ministry of Labor and Social Affairs data). The proposals also aim to make company pensions more flexible. Read WTW Germany's detailed analysis of the act in our press release: Referentenentwurf des Gesetzes zur Änderung des BetrAVG veröffentlicht.
Key details
Among other things, the draft act would:
- Allow “third party” companies not currently bound by a relevant collective agreement to participate on the basis of a specific collective agreement in “pure” defined contribution retirement plans arranged under the Social Partner Model (SPM – Sozialpartnermodell), subject to the approval of the collective bargaining parties managing the SPM. The third parties could also be required to contribute toward the SPM's operating costs.
- Permit employers to establish — with agreement of company worker representatives (e.g., Works Council) — deferred compensation plans in which employees are automatically enrolled but may opt out, with an employer contribution matching at least 20% of the employee deferral. Today, such arrangements are only allowed by collective agreement, with the minimum employer contribution based on the amount of social security contributions the employer saves (up to 15% of the employee deferral).
- Allow occupational pension plans to pay out benefits early for claimants who are receiving a partial state retirement pension. Currently, occupational pension plan benefits may only be paid if the claimant is receiving a full state pension.
- Increase the government subsidy of pension contributions for low-paid employees in occupational retirement plans.
- Allow pension funds (Pensionskassen) to underfinance their liabilities temporarily by up to 10%, subject to requirements.
- Permit pension funds (Pensionsfonds) to pay out benefits in installments (currently only a lump sum and annuity are allowed by the Insurance Supervisory Law).
Employer implications
The draft act is also notable for the topics that are absent, such as measures to promote conventional company retirement plans. Employers should monitor the legislative process and prepare to review their occupational pension and deferred compensation policies. The draft act, possibly reflecting comments from parties consulted by the responsible ministries in July 2024, is scheduled to be adopted by the cabinet by the end of August 2024 and then submitted to Parliament for passage.
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