DVFA monthly question November: Tax-incentivised private pension provision

The rapid end of the coalition with the traffic light coalition jeopardises an extremely important reform project. On 13 November, the Federal Cabinet was due to discuss the draft bill for a “Law on the reform of tax-incentivised private pension provision” (pAV Reform Act), among other things. Against the backdrop of the changed political situation, it is questionable whether this will happen. However, a recent survey of financial experts documents the usefulness of the proposal.

In the current monthly survey (survey period: 23–30 October 2024, i.e. before the ‘traffic light phase-out’), the professional association DVFA asked its investment professionals for their views on the proposals. The focus is on promoting private pension provision more strongly in favour of capital market products without expensive capital preservation guarantees reducing the overall return. The result was clear: 99% of investment professionals believe the plan is the right one. “This impressively confirms how important it is to link the pension provision of large sections of the population directly and undiminished to the value creation of the real economy. The players in Berlin should also be aware of this,” comments Roger Peeters, Deputy Chairman of the DVFA Executive Board.

When asked which elements of the reform were particularly relevant, the majority of responses (44%) were in favour of broader investment options, closely followed by the abolition of mandatory guarantees as they apply to the so-called “Riester pension” (38%). The higher allowances ranked significantly lower with 14% of responses, as did the simplified funding procedure through digitalisation (4%). In comments, a large majority of participants emphasised that it was “long overdue” to remove the brakes on returns in private pension provision in the future.

Similar to the topic of so-called “generation capital” in statutory pension insurance (DVFA monthly question from April 2024), investment professionals also miss some important points in the draft of the pAV reform law. When asked about this, most responses (37%) centred on “subsidies and allowances that are far too low” and almost as many (34%) on the shortcoming that the self-employed are not to be included in direct subsidies immediately, but only in the future. In third place (25%) was the lack of a one-off payment option, for example in the event of unemployment. Only a few are completely satisfied with the draft bill (4%).

The investment professionals were also asked whether they would personally want to utilise the offer if it were to be introduced as designed. Regardless of whether they already have a Riester contract or not, over half of the participants (52%) stated that they would make use of the tax-incentivised private pension scheme in the future. However, one in five do not intend to do so, are already too old or are not authorised to use it, while 27% are currently unable to answer the question.

Finally, the DVFA asked about the “ideal mix between a pay-as-you-go system and a capital market-oriented private pension scheme”. Almost every second answer mentioned an even broader range of options, including occupational pensions and a state fund. The call for a clear focus on capital market-oriented funding in the interests of higher returns was given almost as much weight. The pay-as-you-go system, on the other hand, came a distant second with 4%. In comments, however, individual participants made it clear that the pay-as-you-go system is unlikely to be dispensed with in future for financial reasons alone. It was also important for investors to be able to allocate capital themselves according to their risk appetite.