Interview: Wirtschaftsweise Werding: “We have taken a giant step in the right direction”

Mr. Werding, as a member of the Advisory Council, you are one of the originators of the retirement savings account. Are you happy with what's coming next?

In many ways, yes. Before the reform, the Advisory Council had called for private pension provision to become simpler, more return-oriented and more cost-effective. We have now made giant steps in this direction.

So everything is fine.

The retirement savings account is voluntary. However, the council has also said that funded provision should become more binding, ideally with an opt-out in order to also include those who are undecided. There are many people in particular who will urgently need an additional pension.

So they would have preferred a model like the one in Sweden. Here money automatically flows into a stock-based pension plan. The people there only have the choice of whether they save with the state product or with that of a private provider.

If you pay in automatically, the hurdle to cancel is high. We know this from behavioral research and from practice. Participation is mandatory in Sweden; the Aging Safety Commission has now recommended such a model.

What do you generally think of the idea of ​​a standard government product as part of the retirement savings account? According to our research, the product should come, but certainly not in January 2027, when most private offers start.

The state product was surprisingly incorporated into law in the final stages of the negotiations over the retirement savings account. This is only mandatory with a mandatory or opt-out solution. Although I can understand the consumer advocates who promoted it. A government product can increase confidence in the retirement savings account. However, there are concerns regarding competition law...

Proponents of the government's standard product point out that it ensures that private providers charge low fees, as we have seen in Sweden.

That actually worked in Sweden. In Germany we now have a cost cap of one percent, at least for the standard depot.

The offers that are already on the market sometimes even significantly undercut these caps.

That's a good thing, although I would be cautious about how long the fees remain so low. The offers we are currently seeing are intended to penetrate the market. Some providers have already stated that their depots only cost very little or nothing for the first year or for a certain period of time. What comes next is unclear.

We have two options for retirement savings accounts: On the one hand, there is the standard product with a cost cap. There are also retirement savings accounts without cost caps, for which not only consumer advocates expect high fees. Do we even need both ways?

Capital guarantees may also be provided for depots without a cost cap, which will inevitably make them more expensive than the standard product. None of this is wrong, as long as people who buy these products are transparently informed about the higher costs. We as savers have to be vigilant here. I therefore also welcome the fact that the market is to be evaluated in two to three years. Then you will see what is going well and not so well, and hopefully you will draw the right conclusions.

In addition to the retirement savings account, the early start pension is also scheduled to begin in 2027. Through it, all six-year-olds should receive ten euros per month from the federal government to invest. Is this a sensible addition to your retirement savings account?

The early start pension is based on a proposal from the Council of Experts. Back then we called it children's entry allowance. For us, it was less about taking the first steps toward retirement planning and more about practical financial education. In this way, children should be able to look at what has happened to their depots over the years, together in a school class in an age-appropriate manner. Encouraging children is a good start. The fact that it is now only starting with six-year-olds and not, as originally planned, that all children between six and 18 receive ten euros per month is probably due to the current budget situation.

According to Handelsblatt calculations, around 1.1 billion euros would have had to be spent on the twelve vintages per year. That's a lot of money.

Sure, but it always amazes me that there is significantly more money available for short-term relief. With the recently approved fuel discount, you could have given all children between six and 18 ten euros a month for two years. Unlike the gas discount, the money that flows into the early start pension is not gone, but rather an investment in our children's financial education and pension.

You often hear the accusation that retirement savings accounts only help people with higher incomes save.

The funding is designed in such a way that it is still clearly aimed at low-income groups and families. For these groups, as with the Riester, the funding rates are highest in percentage terms.

Can the retirement savings account save our pension system?

25 years ago, the statutory pension covered around 70 percent of the last net income of a person with a continuous working career. Today we are roughly at 55 to 60 percent, and the trend is falling. I think most people are aware that they have to do something to live well in old age. We have already taken steps in the right direction with the retirement savings account. Now people have to save within this framework with cheap and profitable products. But we should also hope that the capital pension will be introduced.

With capital pensions, two percent of gross income should flow into the statutory pension in addition to pension contributions, but should be invested there on the capital market.

Exactly. This component can help ensure that the statutory pension brings a young professional to a level of 70 percent of their last net income over the decades until retirement - provided that the person pays steadily into the pension insurance.

This pension alone already sounds like the salvation of our pension system.

That would have been too short. Anyone who is already working certainly needs more than the capital pension to get to 70 percent, and full living standard security requires more than 70 percent. It is therefore still worthwhile to prepare for retirement with a retirement savings account. The product is easy to understand and the promotion is high.

What applies now?

The Pension Commission has recommended January 1, 2028 as the starting date for capital pensions, which is already an ambitious goal. In addition to private providers, a government product is needed for everyone who can't or doesn't want to take care of it. Because unlike the retirement savings account, the capital pension should be mandatory. Private individuals will certainly be able to do this, especially because of the great similarities between the planned offer and the retirement savings account. When it comes to state products, it still needs to be clarified who acts as an investor, how this institution remains independent, who provides the infrastructure for private accounts and much more. The key points can currently be clarified, but it does not fit into the draft bill for the reform of the pay-as-you-go pension that everyone is now waiting for.

Assuming this process drags on and the start date of January 1, 2028 cannot be maintained, what would be the consequences?

Later is always better than not at all. But with capital coverage, the duration of the savings period is important, so every lost year is bad. Specifically, after 2031, the pensions paid out to pensioners in the first year may fall below 48 percent, and the state would have to spend additional money at times.

Our retirement provision system is based on three pillars. The private pillar has now been reformed, but a proposal for the statutory one has been postponed. What should happen with the company pension?

In addition to what is now happening and can happen in the other two pillars, the company pension currently looks old. It must also be emphasized that there are many employees who can expect very good company pensions, but unfortunately not all of them. Reforming company pension schemes will be the next step, but it will be difficult. In any case, we have to make our pension system less dependent on as many young people as possible paying in to finance people's retirement.

Finally, a personal question. Many of the reforms that are now being implemented or at least addressed have been recommended by you and many of your colleagues for years. Do scientists who advise governments need a lot of patience?

That depends on the topic. When a useful brake on gas costs is required, as in autumn 2022, consultants have to sprint. Retirement security, on the other hand, is a long haul. However, we are now running out of time due to demographic aging. The next pension reform must be effective.