Frankfurt According to the coalition agreement, the traffic light coalition wants to “fundamentally reform” private pension provision. There is a particular need for action with regard to the state-sponsored Riester pension, which in the past was often taken out in the form of life insurance.
Many Germans still do not make private provision for old age. According to the Federal Ministry of Labor, there were only 16.2 million Riester contracts at the end of the third quarter. In addition, low interest rates and rising inflation are making many old-age provision products increasingly unattractive.
Carsten Zielke, managing director of the independent consulting firm Zielke Research Consult, therefore has two central demands on the new federal government. It is intended to abolish the compulsory pension for state-sponsored private old-age provision and to replace the “dusty” accounting according to the Commercial Code (HGB) with the insurers by the international IFRS regulations. Zielke is best known for his life insurer study, which he regularly presents with the Association of Insured Persons (BdV).
A key problem with Riester products: They provide for the capital to be retained and leased. Insurers therefore have to invest most of the money in fixed-income paper. According to calculations by Zielke, consumers with Riester contracts get an average of € 110.30 back for € 100 paid. With 100 euros paid in annually, this results in a capital of 4820.63 euros after 35 years. In fact, with two percent inflation, a real value of only 2410.45 euros remains.
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“So that the insurers can invest customer money more strongly in the capital market and achieve a more appropriate return, the government should lift the obligation to retire and set the payment plan up to the age of 85,” says Zielke. After the age of 85, the community should come up with taxpayers’ money, according to his idea.
Insurers present lifelong pensions as an advantage
The insurers, on the other hand, present lifelong pensions as the main advantage of life and annuity insurance. For this reason, when the Riester pension was introduced, the legislature sensibly stipulated a lifelong retirement of the capital, ”said a spokesman for the industry association GDV to the Handelsblatt.
In addition, a lump-sum payment is possible with the Riester pension: “At the start of retirement, insured persons can have up to 30 percent of the existing capital paid out without losing state funding.”
However, according to Zielke, the insurers assumed a very high life expectancy when calculating the contracts. Accordingly, the industry expects Riester pension recipients to have a life expectancy of 93 years – despite an actual life expectancy of 76.6 years for men and 83.4 years for women.
Zielke criticizes the fact that life expectancy in Germany is calculated exclusively by the insurance industry. In other countries such as Australia, Great Britain, the Netherlands and the USA, on the other hand, a secondary market for insurance against longevity risks has developed. Providers could respond more quickly to changes in mortality, such as those that may result from the pandemic.
According to Zielke, anyone who has already signed a Riester contract should be able to choose in the future. Customers who want the lifelong annuity should get it too. Only the compulsion to retire should be given up.
According to Zielke, the insurers themselves could also benefit from the abolition of the compulsory pension. It can be assumed that competition will increase, as banks and asset managers can increasingly offer subsidized pension products.
Life insurers would be relieved on the capital side
The life insurers would, however, be greatly relieved on the capital side. The solvency ratio, which indicates the extent to which insurers can keep their performance promises even in times of crisis, would improve by a factor of 1.6 to 2.0 according to Zielke’s calculations.
Would you also like the HGB accounting Replacing them with the more economical IFRS accounting in most EU countries will enable insurers to invest more in real assets such as stocks.
Because when applying the HGB rules, the insurers have to calculate the Riester contracts with historical interest rates, which are no longer justified in today’s environment. This puts a strain on the balance sheet and limits the scope for action. In the case of IFRS, on the other hand, the realistic interest rate is used.
When it comes to reforming the Riester pension, the GDV is relying primarily on simplifying funding and loosening the contribution guarantee from the previous one hundred percent. Because, especially with the lowering of the maximum technical interest rate to 0.25 percent from January 2022, the insurers can no longer calculate Riester products to cover costs – many are therefore withdrawing from business.
What exactly the new federal government will implement is open. According to the coalition agreement, she wants to examine the legal recognition of private investment products with higher returns than Riester. A publicly responsible fund with an effective and inexpensive offer with the option of opting out should also be examined. Not only the insurers are skeptical about such a product. Zielke also prefers a private-sector solution.
More: Fewer guarantees, more risk: How life insurers reinvent themselves in times of need