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IPE.com 7/Mar/05: GERMANY – Bert Rürup, the head of the government’s panel of economic advisors, says the issue of mandatory retirement saving may come up again in the next legislative period.

“The question of whether to make saving for retirement mandatory remains an open one. Although nothing will be done on it in the current legislative period (which ends in September 2006), it may come up again in the next one,” Rürup told a pensions conference in Berlin sponsored by the business daily Handelsblatt.

Rürup’s comment comes amid signs that despite the government pension reforms of 2001 and 2004, German demand for second- and third-pillar pensions remains sluggish. Rürup was also head of Germany’s pension commission.

The market for the third-pillar pension, known as the Riester Rente, is estimated at 30 million people. However, since the launch of the private pension at the start of 2002, only 4.2 million have signed up for it.

Riester’s second-pillar version was launched at the same time as its third-pillar version. It permits employees to set aside 4% of their salary for retirement without paying tax. Employers can also provide a tax-free subsidy to the employee in the same amount – that is up to 4% of salary.

Despite these incentives, the second-pillar version of Riester, like the third-pillar one, has not lived up to the government’s original expectations. Those expectations were that nearly all German employees would quickly sign up for it.

Rürup said that if retirement saving ever became a requirement for German employees, “the amount they may set aside should be lower than 4%,” as this would severely limit their disposal income.

“In any case, I’m very much in favour of making the tax exemption for retirement savings from employees permanent,” he added. The tax exemption for the second-pillar version of Riester is due to expire in 2008.

Peter Görgen, a senior official at the German social affairs ministry, told IPE on the margins of the conference that the government felt its pensions reforms were having the desired impact.

“The latest statistics reflect that between that private sector and the public sector, 57% of all employees obliged to pay social taxes have a corporate pension,” Görgen noted.

Expressed as a number, this means 10 million in the private sector and five million in the public sector have a corporate pension.

Nonetheless, Görgen said he agreed with Rürup that the question of whether to make retirement saving mandatory was still very much an open one.

By Jan Wagner

Abridged from Investment and Pensions Europe