Germany discusses making company pensions obligatory

Finance Minister Lars Klingbeil (SPD) has said he supports a proposal from the German Trade Union Confederation (DGB) to make company pensions obligatory.

DGB for obligatory company pensions

According to DGB estimates, around 20 million employees in Germany do not have a company pension (betriebliche Altersvorsorge or bAV). German employers are only obliged to offer a company pension scheme at employees’ request, and employees aren’t obliged to contribute.

That’s because company pensions are just one pillar of Germany’s three-pillar pension system, alongside statutory pensions and private pensions. But with an ageing population and declining birth rates putting this system under strain, the DGB believes making company pensions obligatory could help keep all three pillars in balance.

How do company pensions work?

Within the company pension pillar, there are five different contribution schemes. Some schemes are financed by employers, employees, or a mixture of both. If employees do decide to contribute to a company pension, employers are obliged to contribute at least 15 percent of the employee’s contribution towards their company pension scheme. This is because employers are making savings on social security contributions through salary reductions.

But in reality, employer contributions can be minuscule. For example, if you are contributing 100 euros per month, your employer would only be obliged to contribute 15 euros per month. Some employers will offer to pay more than 15 percent, with some even matching their employees’ contributions or paying the whole contribution entirely, but none of this is obligatory.

Speaking to RND, DGB representative Yasmin Fahimi said the organisation would propose a more concrete plan by the end of June. Fahimi said it is already clear that there should not be “a one-sided burden on the employee,” and that in many other European countries, employers contribute more than employees.

Fahimi added that trade unions were “ready to establish collective arrangements for all employees based on collective bargaining agreements”. According to the Federal Statistical Office (Destatis), 49 percent of employees are currently covered by a collective agreement (Tarifvertrag). These employees are more likely to have a company pension plan.

Klingbeil supports DGB proposal

Speaking on the ARD Arena programme, Finance Minister Lars Klingbeil said he was broadly in favour of the DGB’s proposal. 

“If we strengthen the statutory pension system [...] make the company pension system mandatory, and expand the private pension system, then we have a chance to truly make the pension system sustainable for the future,” Klingbeil told the audience.

The minister added that the CDU/CSU-SPD government’s coalition committee would give the issue “significant attention” in its meeting scheduled before parliament breaks for summer recess on July 10.