BVI in election year: Politicians must now set the course for key financial issues
- Pension scheme reform is urgently needed
- Tax relief for savers is long overdue
- Reject any separate German route forsustainability regulation
- Use Brexit to help promote Germany as afinancial centre location
In this election year, the German Investment Funds Association BVI appeals to political parties to take orientational decisions on key financial issues as quickly as possible. ‘Germany has an unprecedented reform backlog at the expense of savers,‘ said BVI’s CEO Thomas Richter at the annual press conference. ‘The point has come when politicians must finally act. This concerns the Riester reform agreed in the coalition agreement and the long overdue relief for small savers.‘ In addition, Brexit creates a need for action to promote German and European locations, Richter said. The BVI also calls for legislative support for the digital transformation of the financial industry.
Old-age pension provision in Germany needs to be reformed
Due to negative interest rates, the BVI considers extensive adjustments to pension provision are urgently needed. ‘If you imagine old-age pension provision in Germany as a house with three floors, then all three are in need of renovation - statutory pensions, supplementary provision through company pension schemes and Riester pensions as well as privately funded old-age provision, ‘ says Richter. The problem in the first pillar is that the pay-as-you-go system of statutory pensions is increasingly dependent on tax subsidies. According to the Federal Ministry of Finance, their share in financing the statutory pension has been increasing for years: from 73 billion euros in 2002 to 102 billion euros last year. In 2023, according to the federal government's financial plan, it will already have reached 114 billion euros.
In order to place the statutory pension on a broader financial basis, the BVI advocates supplementing the statutory pension with a component covered by the capital markets. The current statutory pension contribution of 18.6 per cent would be reduced accordingly, so that the contribution burden would remain the same. ‘A sovereign wealth fund in private pension provision would be a mistake. On the other hand, state-organised, additional capital cover as a supplement to the statutory pension would make sense,‘ says Richter.
Promote privately funded old-age provision
Since even a funded component in the first pillar is not sufficient to close the pension gap for citizens, the BVI also advocates a reform of the subsidised private pension scheme (pAV). The pAV must be fundamentally revised, all the more so as the reform of the Riester pension agreed in the coalition agreement threatens not to pass in the current legislature. ‘The compulsory guarantee combined with negative interest rates have been unnecessarily reducing the returns of more than 16 million Riester savers for years, but the Federal Minister of Finance is letting them down by dragging out the agreed reform,‘ says Richter. Without flexible guarantees, the BVI considers a reform of the subsidised pAV to be pointless.
Because the savings tax allowance for savers has been stagnating for years, the BVI also calls for relief for small savers. Richter says: ‘The consumer price index, pension values, basic allowance and income limits have been rising regularly for years, while the savings tax allowance for savers has been reduced and is still at the level of 2007. If politicians want to stop neglecting savers, the savings tax allowance must be increased and linked to future inflation and wage development.‘ The BVI proposes an increase from 801 to 1000 euros for single persons (and for couples 2000 euros). In addition, savers should be able to carry forward unused saving tax allowances year on year and accumulate them in order to benefit from them when the capital investment is realised. Calculations by the BVI show that a saver who, for example, invests 200 euros per month for 15 years in an accumulating equity fund with a return of 4 percent per year would thereby achieve a return of 4.7 percent more than before.
No separate German route for sustainability regulation
Regarding the topic of sustainability, the BVI appeals to the Federal Government to emphatically advocate appropriate European and global sustainability rules and not to take a special German path. The relevant sustainability requirements fall largely under the competence of EU or international bodies. The German government should therefore use its leverage to help shape regulation in Brussels instead of allowing external advisory bodies to lead it down special national routes. Important regulatory goals are, in particular, to harmonise the requirements for sustainable products across the EU and to close the existing ESG data gaps, especially for companies based outside the EU.
Brexit as a corrective factor to overregulation
Brexit intensifies competition between the global financial centres also concerning financial market regulation. The BVI sees this as fundamentally positive because it can be a disincentive to overregulation in the EU. However, the BVI rejects a regulatory race to the bottom. The BVI would like the German government to show greater appreciation of the financial sector as an important factor favouring location in Germany and to do more to reduce overregulation in the EU. ‘If Germany is to play a leading role in the European and global financial market, the government must develop a more positive attitude towards the financial industry and set the course for greater competitiveness,‘ says Richter.
Strengthen technological progress
In order to ensure that fund providers keep up with the digital transformation and the technological competitiveness of the financial industry, the BVI is promoting a national blockchain initiative in asset management. By using distributed ledger technology (DLT), transactions could be processed quickly, securely and efficiently. The aim is to bring together the players from the financial sector, politics and supervision to agree on the technical architecture for trading in digital assets. An essential component is the introduction of a digital euro as a DLT means of payment. ‘The fact that electronic fund shares are to be legally authorised in this country is an important step forward,‘ explains Richter. In order to be able to trade fund units via the blockchain, digital fund units now need to be authorised in the Capital Investment Code as a second step. In addition, the BVI is campaigning for a digital market infrastructure to be made possible under EU law and for funds to be allowed to acquire bitcoin or tokenised assets.