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Private Insurance and Old Age Provision in Germany. Peter Schwark, GDV Head of Department Social Policy and Pension funds. Outline. The Life Insurance Market in Germany The German Statutory Pension System Reform projects in the pension field Conclusion.

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Private insurance and old age provision in germany

Private Insurance and Old Age Provision in Germany

Peter Schwark, GDV

Head of Department Social Policy and Pension funds


Outline
Outline

  • The Life Insurance Market in Germany

  • The German Statutory Pension System

  • Reform projects in the pension field

  • Conclusion


German insurance markets 2002 premium in euro million growth rate 2002
German Insurance Markets 2002 Premium in EURO million / Growth rate 2002

Accident 5.6 EURO bn.+ 1,5 %

Life 65.1 EURO bn. + 4,5 %

Property 47.2 EURO bn+ 3,1 %

premium total: 141.0 EURO bn.

Health 23.1 EURO bn + 6,4 %


Top ten of life insurers 2002 premiums in euro bn
Top Ten of Life-Insurers 2002Premiums in EURO bn.


Life gross premiums written in eur million
Life: Gross premiums written in EUR million

+ 3.5 %

**) estimated business trend


Life: Benefits in EUR million

*) estimated business trend


New business by type of insuranceEndowment insurance, annuity insurance and unit-linked life insurance, number of contracts in %


Life insurance by international comparison
Life insurance by international comparison

Share of total life premium 2001 Source: CEA



Benchmarking pensions *)

*) Income structure of 2-Persons-Pensioners-Households

Source: Miegel/Börsch-Supan (1999)


Outline1
Outline

  • The Life Insurance Market in Germany

  • The German Statutory Pension System

  • Reform projects in the pension field

  • Conclusion


German pension system 3 pillars
German pension system: 3 pillars

statutory pension insurance (PAYG)

occupational pensions

life insurance


Pension provision in Germany: Details

Supplementary pensions for public sector employees

Civil servicepensions

2%

10%

Lifeinsurance

17%

5%

Occupational pension schemes

66%

State pension system

Source: GDV, Alterssicherungsbericht2001


Development of the statutory pension system
Development of the statutory pension system

  • 1889: Founded by Chancellor Bismarck as disability insurance

  • 1911/1916: Introduction of old age pension system (retirement with 65)

  • 1957: Increase of old age pensions aiming at maintaining the reached standard of living (indexation of pensions with general wage trend)

  • 1972: Further improvement of benefits

  • 1989/1996: First reforms to make PAYG system fit for the demographic challenge

  • 1997: Introduction of a „demographic factor“ reducing pension dynamics

  • 1998: Newly elected Government cancelled 1997 reform

  • 1999: Channelling of newly introduced Eco-taxes into the PAYG-system



Social security contribution ceiling (1960 – 2004)

Old and new Länder, € per month

5.150

4.350

Source: VDR


Part of public pensions financed by the Federal Government until1990 West-Germany, since 1991 Germany

Source: VDR


2050

2025

1997

110

110

110

100

100

100

90

90

90

80

80

80

70

70

70

60

60

60

50

50

50

40

40

40

30

30

30

20

20

20

10

10

10

0

0

0

1.000.000

500.000

0

1.000.000

500.000

0

500.000

1.000.000

1.000.000

500.000

0

500.000

1.000.000

500.000

1.000.000

men (new Länder)

men (old Länder)

women (new Länder)

women (old Länder)

Demographic perspectives for Germany

Source: Birg/Flöthmann, 2000


Population in Germany: age-groups

2000: 82 Mio.

thereof:

0 to 20: 17 Mio.

20 to 60: 46 Mio.

60 and older: 19 Mio.

2030: 77 Mio.

thereof:

0 to 20: 12 Mio.

20 to 60: 36 Mio.

60 and older: 29 Mio.

2050: 68 Mio.

thereof:

0 to 20: 10 Mio.

20 to 60: 30 Mio.

60 to: 28 Mio.

60 and older

20 to 60

0 to 20

Source: Birg/Flöthmann, 2000


Development of old age dependency ratio

Immigrated Population

Population in Germany

German Population

Source: Birg/Flöthmann, 2000


Outline2
Outline

  • The Life Insurance Market in Germany

  • The German Statutory Pension System

  • Reform projects in the pension field

  • Conclusion


Pension-Reform I: Reducing Public Pensions

SGB

Cuts in PAYG state pension system

  • Diminishing the level of pensions from today 70,7 % to 64 % in 2030 of average net-income (standardized for an average earner after 45 contribution years).

    Long term objective

  • Limit the contribution rate to 20 % of wages until 2020, and to 22% until 2030.


Pension-Reform II: increasing private (funded pensions)

Retirement Savings Law(AVmG)

  • introduction of “Riester scheme” for supplementary (funded) pension provision (2nd or 3rd pillar) => voluntary scheme

  • strengthen occupational pensions

  • introduction of pension funds in Germany


Riester conditions for individual pension plans
“Riester conditions” for individual pension plans

  • Withdrawals starting at age 60 (at the earliest)

  • Minimum guarantee on benefits (capital maintenance)

  • Lifelong annuity orwithdrawal plan coupled with annuity from the age of 85


Riester market
“Riester” market

New business in Riester products

Number of contracts for each quarter


Riester market1
“Riester” market

Reasons for unsatisfactory spread:

• inadequate consciousness of the need to make individual provisions

• economic situation: high unemployment, declining income

• complex subsidization


Occupational pension schemes in Germany, Assets 2001

Support fund (Unterstützungskasse) (€ 22,8 bn)

Total € 620.4 bn

Retirement fund

(Pensionskasse) (€ 72,7 bn)

7 %

21 %

59%

13 %

Direct insurance

(Direktversicherung)(€ 43,8 bn)

Book reserves

(Direktzusage)(€ 202,3 bn)

Source: aba Arbeitsgemeinschaft für betriebliche Altersversorgung e. V.


Taxation of occupational pensions

  • EET taxation

    • up to 2418 EURO p.a.

    • retirement fund, pension fund

  • Flat-rate taxation (20 %)

    • up to 1.752 EUR

    • direct insurance, retirement fund

  • Riester incentives (subsidies and EET taxation)

    • increasing from from 525 to 2100 p.a. (2001-2008)

    • direct insurance, retirement fund, pension fund


Outline3
Outline

  • The Life Insurance Market in Germany

  • The German Statutory Pension System

  • Reform projects in the pension field

  • Conclusion


New reforms ahead

  • Further reforms in the statutory system: decreasing pensions levels, increasing the pensionable age

  • Introduction of a full taxation system for old age pensions

  • Reform of tax-incentives for private and occupational system: less bureaucracy or more regulation ?


Report r rup ii
Report „Rürup II“

Mission of the Rürup II Committee:

The Rürup II Committee should submit proposals by the autumn of 2003 with a view to stabilizing the financing of pension, health and long-term care insurance on a long-term and sustainable basis.


Implications of Rürup II for PAYG Pensions

Starting situation of the Rürup II Committee:

Without a new reform of statutory pension insurance the following developments are likely:

• Contribution rate will rise from 19.5% to 24.2% by 2030.

• Gross pension level will decline from 48.2% to 41.9%.

• Slow development of old-age provision operated on a funded basis.

Conclusion: Despite the so-called “great reform” in 2001 state old-age provision operated on a pay-as-you-go basis is not ensured on a “sustainable” basis.


Proposals of Rürup II

Dismissed proposals:

extension of contribution ceiling and of the category of persons liable to insurance

Positive proposals on statutory pension insurance:

• raise retirement age from 65 to 67 beginning in 2011

• modification of pension adjustment formula

Positive proposals on private pension insurance

  • Simplification of the Riester-Incentives


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