BVI: Policymakers must stay the course on reform
- Greater funded provision needed in both state and occupational pensions
- Infrastructure financing: better channelling of private capital into German projects
- European index family to finance EU’s economy
- FiDA threatens EU’s strategic autonomy
- Centralised financial supervision in asset management creates more problems than it solves
The reforms initiated in private pension provision and infrastructure financing mark a good start. Policymakers must now follow through consistently to strengthen Germany’s competitiveness. ‘Even though some – especially within the EU institutions – shy away from the word as the devil shies away from holy water, what we need is deliberate deregulation. In the fund industry alone, hundreds of unnecessary rules could be removed without increasing risks to the financial market or consumers,’ says Thomas Richter, CEO of the German Investment Fund Association BVI.
Allowing more funded provision in state and occupational pensions
With its draft legislation to reform private pension provision, the Federal Government has responded to key demands of the BVI: mandatory guarantees and compulsory lifelong annuities are being abolished. The new pension investment account offers greater flexibility and better return prospects than the Riester pension. ‘This reform represents a paradigm shift and significantly increases the attractiveness of private pension savings. It also finally brings Germany in line with international practice,’ Richter says.
The Government also plans to introduce a scheme for children aged 6 to 18, the so‑called ‘Frühstart’ pension. Its aim is to strengthen financial literacy among children and parents. However, in cases where parents do not choose a product, the Government intends to introduce a state‑run default option. As a result, these families would have no direct contact with capital markets – undermining the intended goal of improvement in financial literacy.
Given demographic change, reforming only the third pillar is not enough. The Government’s Pensions Commission has been tasked with examining all three pillars. ‘In the state pension system, introducing a funded component is essential to reduce the system’s growing dependence on tax subsidies in the medium term,’ Richter notes. As in Sweden, the funded element of the state pension could be channelled into a government‑run fund or into funds offered by private providers through regular contributions. ‘In occupational pensions, we also need solutions without guarantees, available beyond social partner models. Only then can occupational pensions succeed, particularly for small and medium‑sized enterprises,’ says Richter.
Infrastructure financing: eliminating competitive disadvantages
With the Standortfördergesetz, policymakers have created a useful tax framework allowing real estate and special funds to invest in infrastructure projects and venture‑capital funds.
However, to ensure German investors’ capital flows into domestic projects – rather than primarily abroad, as has been the case – more fund managers are needed in Germany. Fund managers typically invest disproportionately in companies and projects located in the country in which they work. This is where the Federal Government’s WIN initiative comes in: it aims to strengthen Germany as a hub for venture‑capital and private‑equity investment. Yet Germany’s tax rules continue to create competitive disadvantages for the financial sector. Richter states: ‘The Standortfördergesetz is an important step, but it does not go far enough. For asset managers to invest from within Germany, these rules must be extended to all fund types, regardless of their legal form.’ The BVI calls for additional legislation enabling on‑the‑ground asset management and providing legal certainty in distinguishing asset management from commercial activity. Only then can existing disadvantages vis‑à‑vis Luxembourg, the UK, Italy or Switzerland be eliminated and more private capital directed into Germany.
European index family to finance EU’s economy
Across Europe, substantial investment in the economy, infrastructure and defence is urgently needed, and private capital will be vital. To strengthen financing within the European economy, the BVI advocates the creation of a European index family: the European All Shares Index Family (EUASIF). This would give the Capital Markets Union a recognisable profile and offer small and medium‑sized enterprises, especially those from smaller markets, better access to finance. Richter notes: ‘A European index family can help retain capital within Europe and attract additional investment.’ EUASIF should cover all listed shares issued in the EU while providing sub‑indices for individual countries, regions and sectors.
FiDA threatens the EU’s strategic autonomy
Whereas a European index family would strengthen the EU’s financial sovereignty, FiDA – the EU’s Open Finance project – risks undermining it. FiDA aims to make it easier for third parties to access customers’ financial data. Richter warns: ‘FiDA undermines the EU’s strategic autonomy. The EU will not succeed in keeping third‑country tech giants at bay without discriminating against them, and any such attempt could trigger retaliatory measures by the United States. By simply withdrawing FiDA, the EU can avoid the looming threat of Section 899.’
Centralised supervision in asset management creates more problems than it solves
The latest EU initiative – a centralised financial supervisory body for large EU asset managers under the umbrella of ESMA – would cause more harm than good. ‘Centralising supervision would be inefficient and expensive. National competent authorities will not disappear; they will still be needed to supervise local market participants and to monitor compliance with national rules,’ Richter explains. A central supervisory authority would result in duplicate structures, multiple reporting obligations and hundreds of additional EU officials in Paris. ‘We do not need yet another authority, but better cooperation. ESMA should expand its coordination role – for example, as a data hub for national supervisors with a clear mandate to secure Europe’s competitiveness. Above all, the EU should simplify regulation. The overwhelming flood of regulations from Brussels is the real problem.’
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