Germanys upper house of parliament today approved landmark legislation that will reduce state-sponsored pension benefits and boost the use of corporate and private pension savings. The reforms, effective in January, include tax incentives designed to encourage corporations and individuals to begin funding their pension needs. The bill was supported by Chancellor Gerhard Schroeder.
Peter Koenig, executive director of Morgan Stanley AG, Frankfurt, gave the new legislation a cautious welcome. "This is very good, and it makes sense. But a lot will depend on the detail of the regulations and especially the rules for funded pension plans, he said. The government insurance supervisory authority is to publish those rules by the end of the year.
Mr. Koenig estimates the tax incentives will trigger gross inflows into the new corporate or individual savings accounts of 30 billion euros ($26.4 billion) to 50 billion euros in 2002.
The new funded pension vehicles, which will exist alongside state pension plans, will be a "relaxed version of defined benefit plans, he said, where the amount available on retirement must be no less than the sum of contributions.