Private Pensions: Occupational and Individual Pensions: A Comparative Survey
29.01.2009
With his comprehensive comparative law study, „Private Altersvorsorge: Betriebsrentenrecht und individuelle Vorsorge“, Dr. Markus Roth, Senior Research Fellow at the Max Planck Institute for Comparative and International Private Law in Hamburg, examines the legal structures controlling individual as well as occupational pensions. By comparing German law with foreign schemes and also taking into account related academic disciplines such as economics and the social sciences, the first-of-its-kind overview aims to create a foundational basis for the development of a sustainable legal framework for privately funded retirement programs.
Private pensions - whether in the form of occupational pensions or individual pensions comprising life insurance and investment funds - are assuming increasing significance relative to state-funded programs. Shifting demographics, increased globalisation, the decreasing collectivisation of society and, not least, the financial crisis of 2008 all demand a systematisation and optimisation of private retirement plans inclusive of their legal foundations. In his newly published comparative law overview, „Private Altersvorsorge: Betriebsrentenrecht und individuelle Vorsorge“, Dr. Markus Roth, Senior Research Fellow at the Max Planck Institute for Comparative and International Private Law in Hamburg and Acting Professor at the
Philipps-Universität Marburg, examines the legal structures underpinning both individual as well occupational pensions. The book appears in the Hamburg Institute series „Beiträge zum ausländischen und internationalen Privatrecht“ (Mohr Siebeck).
Private Pensions - At the Crossroads of Security and Personal Responsibility
Markus Roth outlines private pensions in Germany and formulates a "pension protection triangle" consisting of exit, voice and guarantees. With these focal points he establishes general protective principles which take into account the tension between assuring the financial security of citizens while also recognising their personal responsibility. A key role is played by disclosure duties, supervision and the formation of pension contribution plans - these plans representing the leading mode of private retirement programs internationally and certainly in Germany's larger corporate firms. Roth defines this protective triangle more concretely with a full-spectrum presentation of retirement plans, from their initial contractual formation through the ultimate disbursement of payments. The author places particular emphasis on plans which minimise employee costs and simultaneously maximise security. Financial security as a retiree is achieved through the accumulation of capital in separate funds, specially tailored investments and also through - frequently nominal - insolvency insurance.
Lessons from Abroad - Shortcomings in Occupational Pensions and Disclosure Duties
Alongside consideration of the current German legal landscape in regard to pension provisions, Roth's overview also examines and compares foreign legal models. A legal comparison would appear worthwhile to the extent that private pensions have already assumed greater significance in countries such as the USA, Great Britain and Switzerland. This is particularly true of occupational pensions. According to figures of the OECD (Organisation for Economic Co-Operation and Development), in 2005 the asset value of pension funds equalled 117 percent of the gross national product in Switzerland, 98 percent in the USA and 66 percent in Great Britain. According to these same statistics, Germany stands at only 3,9 percent (For 2008, Watson Wyatt Worldwide's 2009 Global Pension Assets Study puts Switzerland at 105 percent, the USA at 87 percent and Great Britain at 63 percent). The comparative study by Roth shows that the legal framework controlling German occupational pensions differs greatly from the regulations in other countries. Thus, in the other named countries there exists - unlike Germany - an obligation to create a separate pool of assets in support of the pension plan. An additional noteworthy difference: In Germany the employer is required to serve as a guarantor of payments during the disbursement period. In the USA, Great Britain and Switzerland there is no such requirement and none of these countries envisage the obligation as a constitutive element of the legal regulations which are applicable to occupational pensions. Furthermore, in the USA and Switzerland the assignment of an employee's accrued pension benefits to a separate fund is relevant to the insolvency insurance on occupational pensions. In England insolvency insurance is also viewed as a protection against the effects of inflation. Furthermore, in comparison to Germany, England has far broader duties of disclosure for investment funds as well as for life insurance plans which feature profit sharing. Building on of this comparative groundwork, Markus Roth develops the doctrinal foundation for true defined contribution plans - thus far non-existent in German occupational pension law. Additionally, he advocates the further development of disclosure duties in accord with the English model.
Private Pensions: One Subject, Many Disciplines
Markus Roth's comprehensive analysis considers a variety of disciplines which are intertwined with the topic of private pensions. In addition to the treatment and comparative law analysis of fields such as pension provision law, insurance law, investment law and trust law as well as a look at their historical roots, of particular note is Roth's consideration of the topic's social science and economic aspects. The latter perspective includes especially the topic of behavioural finance and its relation to the traditional model of homo oeconomicus. Particularly as concerns occupational pensions, the behavioural sciences are capable of offering valuable and practical conclusions. Automatic enrolment in occupational pensions leads to a significantly higher participation rate. It is against this background that Markus Roth concludes it appropriate that German pension provision law authorise true defined contribution plans in connection with automatic enrolment programs. An expansion of the role of private pensions is not only suggested by demographic realities. It would also help to overcome the current financial crisis which, at the time of printing, has become even more acute. Especially since the second world war, occupational pensions have functioned as an important source of internal financing for the German economy. This function can and should be continued through the authorisation of true defined contribution plans.
Further information: Markus Roth, Private Altersvorsorge - Betriebsrentenrecht und individuelle Vorsorge; eine rechtsvergleichende Gesamtschau, Beiträge zum ausländischen und internationalen Privatrecht 88, Mohr Siebeck, Tübingen 2009, LIV + 746 pp.