Security of Pensions

Transkript

1 Security of Pensions by Prof. Dr. Heinz-Dietrich Steinmeyer

2 - Pensions are of essential importance for people and security of pensions important for them for a number of reasons - People depend on pensions as income in retirement - What they have paid in or what the employer has paid / provided if lost usually cannot be replaced by them.

3 To save for retirement needs time and this time is limited

4 What are the possible risks? Depending on the different systems: - Insolvency of the employer - Insolvency of the fund - Fraud - Losses on the financial market

5 but also: - wrong decisions caused by bad advice - Means tests of welfare systems? - Attachment of benefits or contributions by court order - Longevity in case of lump sum payments?

6 What are risks we should really deal with?

7 Let us start with protection against insolvency: - in countries with unfunded systems or funds not separated from the employer there is a need for protection by a guarantee fund - this must also be the case if the employer is able to draw money from the funds - in Germany there is a dispute of whether also cases should be covered in which the employer does not pay contributions to the fund and finally goes bankrupt

8 In case of funded systems and direct insurance the issue is that of a possible bankruptcy of these institutions is also there a system of guarantee funds necessary or can this be prevented by capital market law and/or rules on investment? In Germany the government is just considering guarantee funds also for insurance companies (due to the Mannheimer Case)

9 Interesting very recent development in Germany: - For employees the major issue is the insolvency of the pension provider - For the self-employed an issue is what happens with his pension rights in case of his own bankruptcy does he loose that as well and is then dependant on social assistance? - Equal treatment of self-employed and employees? - see also later

10 Protection against losses on the capital market: - no general protection necessary/possible - But depending on the function of supplementary pensions there may be a need: - in case they are replacing public benefits a minimum benefit should be guaranteed by the scheme - otherwise: who takes the chances of the capital market also has to bear the risks

11 Wrong decisions due to bad advice: - in a way unavoidable - liability of the consultant very often difficult to prove - instead improved consulting by independent (public?) instutions like Financial Services Authority in the UK? - has its limits

12 Fraud - difficult to deal with and even more difficult to be prevented - Supervisor authorities will very likely have only limited effect

13 Means tests of welfare systems - what is the issue? - pension rights are assets - in a means test these rights might be taken into account - acceptable in case of means-tested benefits in old age

14 - but also duty to cancel the policy? Hot debate in Germany - within certain limits yes - it depends again on the special function of the pension (pension right) and also needs a fixed limit in order to avoid misuse

15 Attachment of benefits or contributions by court order - here it also depends on the function of benefit (right) or even contribution

16 - I would like to come back to the issue of the self-employed - in case of their bankruptcy certain pension provisions within certain limits will be protected and will be exempted from seizure - this will also be the same in other cases of attachment by court order

17 Last but not least a very general question: - should pensions be annuities? - In case of lump sum payments a long life can be a risk benefit is eaten up too fast - In general it should be the decision and the risk of the individual

18 - in case of tax subsidized systems the state might require annuities to avoid being responsible for social assistance in the end

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