BERLIN - Efforts to further reform Germany's fraught pension system may depend on the result of Sept. 22's chancellor election.
The race pits the Social Democrat incumbent, Chancellor Gerhard Schroeder, against the pro-reformist Christian Democratic Union's Edmund Stoiber.
Both major opposition parties are attempting to position the country's massive retirement savings problem as an election issue.
Mr. Schroeder is sensitive to criticism of the pension reforms his government pushed through in November, said Peter Schwark, head of the social policy department at the German Insurance Association, Berlin.
"That's why we are seeing more reformist proposals from the opposition parties," Mr. Schwark said.
The reforms, which took effect in January, allowed for the introduction of industrywide pension schemes, several of which since have been launched by unions. The reforms also include small tax breaks for private, industrywide and company-sponsored pension contributions, although opposition parties and some industry participants have criticized them for being ineffectual. The tax breaks start at 1% of salary this year and will climb to 4% by 2008.
"One of the criticisms (of the government) is the number of people who are using the new system ... less than 10 companies have opened new schemes since the reforms passed ... and the take-up of private schemes in the first six months has been disappointing," said Wolfgang Lotze, pensions administrator at Siemens Financial Services, Munich. Siemens Financial is the in-house investment unit that manages the e10.3 billion plan of Siemens AG, Munich.
"I think what they (opposition parties) have to offer is a step in the right direction," he said. "They are certainly taking a more reformist approach."
Lower taxes, less red tape
The CDU proposes, within its first 100 days in office, to further boost tax incentives for individuals to start private pensions rather than the state-funded option used by most Germans now.
The party also is promising to build on some of the recent reforms by cutting red tape and making it easier for companies to sponsor funded plans under the November 2001 reforms.
The CDU's traditional coalition partner, the Free Democrats, a pro-market party predicted to capture 10% to 12% of the vote, has an even more radical pension agenda.
"It's very probable (the Free Democrats) will play a king-making role, judging by their performance in the polls - it seems it's inevitable they will be part of a governing coalition. The question is to what extent can they influence the partner," said Dirk Schumacher, an economics analyst with Goldman Sachs & Co., Frankfurt.
The FDP's pensions policy adviser, Tillman Braun, said in a written statement to Pensions & Investments that the party wants to increase the level of private pensions usage to greater than 50% of the population, up from its current level of 5% to 15%.
This involves moving to a more "U.S. style" defined contribution system, with greater freedom of choice for the individual, he said.
It also would mean extending the private system - known as the "third pillar" - to Germany's burgeoning number of public workers, a move that would be deeply unpopular with the country's powerful unions afraid of eventually losing the government benefit.
While such a shift eventually might prove a major boon for money managers, it's expected to take a long time.
Most Germans still rely on generous retirement benefits provided by the state; just 2.5 million individuals have set up private pensions in the past six months, and they only have until the end of the year to do so.
Projected changes in Germany's demographics, such as the aging of the population and the retirement of baby boomers, will place the country's existing state-funded pay-as-you-go pension system under enormous strain. The German Insurers Association predicts the ratio of workers to pensioners will be 1-1 in 20 years, down from 3-1 now.
"Germany really must bite the bullet. I believe we don't have the comfort of time (for pension reform). We are entering a crucial stage if things don't move quickly," said Siemens' Mr Lotze.