The German economy is not yet gaining momentum, the labor market is weakening, and at the same time the federal government is working on pension reform. Where does the company pension plan find its place in the public discussion as a strategic component of modern human resources policy?
Thomas Jasper: The company pension scheme is gaining political attention – rightly so, as it is a particularly trustworthy and efficient form of pension provision. The Old Age Security Commission also confirms in its report that the company pension scheme must play a central role in the overall concept of old age security. The
2. Company Pension Strengthening Act brings further impetus: The social partner model is becoming more accessible and the funding logic is improving. Nevertheless: Without noticeable simplification and communication that reaches employees, the spread will only increase to a limited extent. Complexity remains the biggest obstacle. This not only affects the company pension scheme alone, but also the interaction of all three pension pillars. Anyone who does not show employees how statutory pensions, company pensions and private pension plans work together leaves crucial levers unused.
A look back: German companies still face high risks from defined benefit plans. How do you recommend affected companies deal with this as part of de-risking strategies?
Martin Brixner: With the actuarial valuation and the sensitivities you have a first impression of the main risk drivers. It is also worth developing targeted scenarios to identify relevant risks. In my experience, it is important to understand the respective commitments and the national framework conditions, as there are significant differences, for example in terms of vesting or pension adjustment. On this basis, it should be considered whether the opportunities and risks are balanced and acceptable from the company’s perspective or whether de-risking should be sought.
How can a company identify the individually appropriate strategy for de-risking?
Martin Brixner: It is essential to formulate a clear target image. The basis is the risk appetite and the sustainability of the company. These should be formulated in a concrete and measurable way, for example an indication of what fluctuation in balance sheet funding is acceptable in a year. Then it is important to gain clarity about the framework conditions. Will the company continue until further notice or is it a project company that will be wound up as planned? If the plan shows a surplus, is it available for de-risking or withdrawal? How reliable is the inventory data? On this basis, the available de-risking measures are compared. What contribution do they make to achieving the goals and what costs or lost income are associated with them? The measures differ from country to country. For example, the buyout options in the UK are different than in Germany, although a lot has changed here. The scope to make adjustments to the commitment, at least for the future, also varies. This comparison must be supplemented by qualitative aspects, such as the expected reactions of the employees and the works council. This framework can be used to structure and track the de-risking decision.
Companies are still dependent on retaining good specialists and managers. What role does the company pension plan play in this?
Thomas Jasper: The company pension plan is not a quick recruiting tool, but it is a strategically underestimated one. Our “Global Benefits Attitude Survey” clearly shows that employees expect a clear commitment from their employer when it comes to retirement provision. This expectation is not a soft preference,
but a tangible factor when choosing an employer and making a retention decision. The data shows a strong employee recruitment and retention effect, especially among specialists and managers who think long-term. What makes the company pension plan particularly valuable is that it is one of the few instruments that really brings together the interests of employers and employees. Particularly effective are clear employer contributions, well-designed matching models and communication that does not present the company pension scheme in isolation, but rather in the context of the overall individual provision across all three pillars.
How pronounced is the social-political sense of responsibility of employers to contribute to the security of their employees in old age with a company pension plan?
Thomas Jasper: Consciousness is present, but unevenly distributed. What is positive: The current German results of the WTW DC study show that employers themselves rate supporting their employees in pension planning as important. This demand is growing. And the winners of the German company pension award impressively demonstrate that good company pension schemes are not a question of company size: large corporations, medium-sized companies and even smaller companies prove year after year that well-thought-out and effective company pension scheme solutions are possible on any scale. At the same time, it remains a reality that many smaller companies are held back by costs, complexity and liability issues. What is needed here is simpler regulation and better administrative support and employers who think about pension planning holistically as an interlocking of the first, second and third pillars, not as an isolated company pension offer.
Sustainability has become an integral part of investment and pension management. How can a company anchor sustainability aspects in its company pension plan?
Martin Brixner: A pragmatic combination of positive and negative selection criteria in an investment guideline that suits the company is a key factor in anchoring it. The topic of sustainability in pension management has become part of the reporting, so that it offers a platform for “do good and talk about it”.
Can it be determined how important sustainability is to employees in their company pension plan and capital investments?
Martin Brixner: The employees and their representatives clearly express their expectations that the issue of sustainability will be adequately taken into account – although opinions about what is adequate vary. Even though the topic has received less focus in the recent past, that does not mean that it has lost its relevance. Rather, it has now become a kind of minimum requirement, without giving priority to returns and security.
How can Financial Wellbeing support younger employees in particular in building long-term financial security for themselves?
Thomas Jasper: Financial well-being is the crucial framework in which company pension schemes really work. Only when employees understand their individual pension gap across all three pillars will their willingness to act increase. Digital tools and individual orientation help to make this overall picture visible. A central lever is often underestimated: decision support also means consciously using decision-making inertia. Opt-out models should be broadly enabled and actively supported, because those who do not take action should still be taken care of. Strong financial well-being initiatives combine structural security through smart defaults with real financial education through the interaction of all precautionary components.
It is still unclear what the concrete impact of an employer’s company pension plan offer is on its long-term attractiveness and retention effect.
Thomas Jasper: The argument that the effect of company pension schemes on employer attractiveness is difficult to measure is no longer valid. Our “Global Benefits Attitude Survey” provides clear evidence here: employees have a strong expectation that their employer will be involved in pension provision. This expectation has direct consequences for the decision to move to an employer and also for the willingness to stay. The company pension scheme does not act as a one-sided employer benefit, but rather as an instrument that brings together employer and employee interests: security of supply on the one hand, loyalty and employer image on the other. However, the effect only develops where communication is successful and where employees understand what the second pillar contributes to their overall personal care. Whoever manages this makes the difference, as an employer and as a pension provider.
(This article first appeared in our Comp&Ben special edition, which you read directly here can.)
