Q&A with Dr. Jürgen Bierbaum: What’s Next for Occupational Pensions in Germany?

Q: Dr. Bierbaum, how would you describe the role of occupational pension schemes in Germany’s overall pension system?
Dr. Bierbaum: Occupational pension schemes play an important role within the entire German pension provision system. This is because the pay-as-you-go statutory pension insurance is not future-proof in the face of demographic change. Supplementary private or occupational pension provision is essential for people in Germany in order to reduce the risk of old age poverty.

Q: With the recent changes in government, do you think we can expect pension reform?
Dr. Bierbaum: Following last February’s snap elections, the coalition negotiations between the conservative-oriented party alliance CDU/CSU and the social democratic party SPD have recently been finalized. They know that reforms in retirement provision are needed to ease the burden on the statutory pension insurance.

Q: What improvements needed in occupational pension schemes?
Dr. Bierbaum: When it comes to occupational pension schemes, the main aim is to make them more attractive and easier to access—for both employers and employees. At the end of 2023, only 51.9% of the total 34.9 million employees subject to social security insurance had an active company pension plan, according to the Arbeitsgemeinschaft für betriebliche Altersversorgung (Working Group for Occupational Pension Provision).

Q: What specific changes would you recommend?
Dr. Bierbaum: Enable opt-out models for all companies. This means that from the outset, employees have a company pension plan with the employer, which they must actively object to if they wish. At the moment, this is only possible in companies bound by collective agreements. Opt-out models would be a major lever for significantly increasing the prevalence of company pension schemes in Germany.

Furthermore, low-income allowance should be improved. This state subsidy aims to make it more attractive for employers to finance a company pension scheme for their low-income employees. Currently, the monthly income limit for employees is 2,575 euros gross per month.
This income limit should be increased and made more dynamic. In this way, we can prevent employees from falling out of the subsidy over time due to normal wage and salary increases.

In addition, an increase in the subsidy rate would be conceivable in order to increase the incentive to provide for oneself.

Q: Has the new coalition addressed these issues so far?
Dr. Bierbaum: In the draft coalition agreement presented recently, the working group for labor and social affairs has so far announced that it wants to digitalize and simplify occupational pension schemes, make them more transparent, and reduce bureaucracy. The portability of company pension schemes in the event of a change of employer is also to be improved. However, detailed questions remain unanswered.

While they have also recognized the necessity to improve low-income allowance, the topic of opt-out models for all companies is not included in the coalition agreement. We will have to wait and see how the plans of the new coalition will actually be implemented.

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