Gesamtverband der Deutschen Versicherungswirtschaft e.V.
Private Insurance and Old Age Provision in Germany
Peter Schwark, GDV
Head of Department Social Policy and Pension funds
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OutlineOutline
1. The Life Insurance Market in Germany
2. The German Statutory Pension System
3. Reform projects in the pension field
4. Conclusion
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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German Insurance Markets 2002 German Insurance Markets 2002 Premium in EURO million / Growth rate 2002
4%
34%
16%
46%
Life 65.1 EURO bn. + 4,5 %
Health 23.1 EURO bnHealth 23.1 EURO bn + 6,4 % + 6,4 %
Property 47.2 EURO bnProperty 47.2 EURO bn+ 3,1 %+ 3,1 %
Accident 5.6 EURO bn.Accident 5.6 EURO bn.+ 1,5 %+ 1,5 %
premium total: 141.0 EURO bn.
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Top Ten of Life-Insurers 2002Top Ten of Life-Insurers 2002 Premiums in EURO bn.Premiums in EURO bn.
1,9
1,9
2,0
2,2
2,4
2,7
2,8
2,8
3,0
6,9
9,6
Gerling
Debeka
AXA
Volksfürsorge
Victoria
Deutscher Herold
R + V
Hamburg-Mannheimer
Aachener und Münchener
Öffentliche Versicherer
Allianz
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Life: Gross premiums written in EUR millionLife: Gross premiums written in EUR million
50.50052.505
58.74961.225
62.387
65.058
67.300
40.000
45.000
50.000
55.000
60.000
65.000
70.000
1997 1998 1999 2000 *) 2001 2002 2003 **)
**) estimated business trend
+ 3.5 %
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Life: Benefits in EUR million
36.960
40.226
44.442
49.40552.340
56.290
64.400
20.000
25.000
30.000
35.000
40.000
45.000
50.000
55.000
60.000
1997 1998 1999 2000 2001 2002 2003**) estimated business trend
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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New business by type of insuranceNew business by type of insuranceEndowment insurance, annuity insurance and unit-linked life insurance, number of contracts in %
68,4 67,358,4 54,2 50,2
11,7
48,0
12,9
46,6
14,5
42,6
16,8
39,4
16,8
39,1
20,3
12,5
26,8
16,4
17,6
22,6
20,7
18,2
18,9
36,4
14,3
23,5
26,8
13,7
0%
20%
40%
60%
80%
100%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1. Hj.2003
total of endowment insurance total of annuity insurancetotal of unit-linked life insurance other life insurance
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Life insurance by international comparisonLife insurance by international comparison
FR17%
DE12%
Others 2%
Other EU 6%FL
2%SE2%
BE3%
CH4%
NL5%
ES4%
IT9%
GB34%
Share of total life premium 2001 Source: CEA
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Life insurance by international comparisonLife insurance by international comparison
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Benchmarking pensions Benchmarking pensions *) *)
*) Income structure of 2-Persons-Pensioners-HouseholdsSource: Miegel/Börsch-Supan (1999)
0
10
20
30
40
50
60
70
80
90
DE NL CH GB US
first pillar
second pillar
third pillar
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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OutlineOutline
1. The Life Insurance Market in Germany
2. The German Statutory Pension System
3. Reform projects in the pension field
4. Conclusion
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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German pension system: 3 pillars German pension system: 3 pillars
statutory pension insurance (PAYG)
occupational pensions life insurance
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Pension provision in Germany: DetailsPension provision in Germany: Details
Shares of benefits in 1999
2%10%
17%
5% 66%
Supplementary Supplementary pensions for public pensions for public sector employeessector employees
Civil serviceCivil servicepensionspensions
LifeLifeinsuranceinsurance
Occupational Occupational pension schemespension schemes
State pension systemState pension system
Source: GDV, Alterssicherungsbericht 2001
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Development of the statutory pension systemDevelopment of the statutory pension system
• 1889: Founded by Chancellor Bismarck as disability insurance
• 1911/1916: Introduction of old age pension system (retirement with 65)
• 1957: Increase of old age pensions aiming at maintaining the reached
standard of living (indexation of pensions with general wage trend)
• 1972: Further improvement of benefits
• 1989/1996: First reforms to make PAYG system fit for the demographic
challenge
• 1997: Introduction of a „demographic factor“ reducing pension dynamics
• 1998: Newly elected Government cancelled 1997 reform
• 1999: Channelling of newly introduced Eco-taxes into the PAYG-system
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Development of contribution rates to Development of contribution rates to public pensionspublic pensions
19,119,5
19,9
14,0 14,0
17,0
18,0 18,0
18,7 18,7 18,5
20,3
19,3 19,1
13
14
15
16
17
18
19
20
21
1957 1960 1970 1975 1980 1985 1990 1995 1997 2000 2001 2002 2003 2004*
contribution rate in % of wages
Source: VDR
*: estimation
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Social security contribution ceiling (1960 – 2004)Social security contribution ceiling (1960 – 2004) Old and new Länder, € per month
Source: VDR
0
1.000
2.000
3.000
4.000
5.000
6.000
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
West East
5.150
4.3504.350
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Part of public pensions financed by the Federal Part of public pensions financed by the Federal Government Government until 1990 West-Germany, since 1991 Germany
Source: VDR
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
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Demographic perspectives for GermanyDemographic perspectives for Germany1997
1.000.000 500.000 0 500.000 1.000.0000
10
20
30
40
50
60
70
80
90
100
110
2025
1.000.000 500.000 0 500.0001.000.0000
10
20
30
40
50
60
70
80
90
100
110
2050
1.000.000 500.000 0 500.000 1.000.0000
10
20
30
40
50
60
70
80
90
100
110
men (new Länder) men (old Länder) women (new Länder) women (old Länder)
Source: Birg/Flöthmann, 2000
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Population in Germany: age-groups Population in Germany: age-groups
0
10.000.000
20.000.000
30.000.000
40.000.000
50.000.000
60.000.000
70.000.000
80.000.000
90.000.000
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
0 to 200 to 20
20 to 6020 to 60
60 and older60 and older
2000: 82 Mio.thereof:0 to 20: 17 Mio.20 to 60: 46 Mio.60 and older: 19 Mio.
2030: 77 Mio.thereof:0 to 20: 12 Mio.20 to 60: 36 Mio.60 and older: 29 Mio.
2050: 68 Mio.thereof:0 to 20: 10 Mio.20 to 60: 30 Mio.60 to: 28 Mio.
Source: Birg/Flöthmann, 2000
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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Development of old age dependency ratioDevelopment of old age dependency ratio
0
20
40
60
80
100
120
140
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Immigrated Population
Population in Germany
German Population
Source: Birg/Flöthmann, 2000
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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OutlineOutline
1. The Life Insurance Market in Germany
2. The German Statutory Pension System
3. Reform projects in the pension field
4. Conclusion
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
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SGBSGBPension-Reform I: Pension-Reform I: Reducing Public Pensions Reducing Public Pensions
Cuts in PAYG state pension system • Diminishing the level of pensions from today 70,7 %
to 64 % in 2030 of average net-income (standardized for an average earner after 45 contribution years).
Long term objective• Limit the contribution rate to 20 % of wages until
2020, and to 22% until 2030.
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Retirement Savings Law (AVmG)
• introduction of “Riester scheme” for supplementary (funded) pension provision (2nd or 3rd pillar) => voluntary scheme
• strengthen occupational pensions
• introduction of pension funds in Germany
Pension-Reform II: Pension-Reform II: increasing private (funded pensions)increasing private (funded pensions)
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““Riester conditions” for individual Riester conditions” for individual pension plans pension plans
• Withdrawals starting at age 60 (at the earliest)
• Minimum guarantee on benefits (capital maintenance)
• Lifelong annuity or withdrawal plan coupled with annuity from the age of 85
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““Riester” marketRiester” market
New business in Riester productsNumber of contracts for each quarter
1.517.740
400.278
163.157
488.594
231.821
101.847
0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
1.600.000
I.Q.2002 II.Q.2002 III.Q.2002 IV.Q.2002 I.Q.2003 II.Q.2003
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““Riester” marketRiester” market
Reasons for unsatisfactory spread:
• inadequate consciousness of the need to make individual provisions
• economic situation: high unemployment, declining income
• complex subsidization
Gesamtverband der Deutschen Versicherungswirtschaft e.V.
27Source: aba Arbeitsgemeinschaft für betriebliche Altersversorgung e. V.
Total € 620.4 bn
59%
Book reserves(Direktzusage)(€ 202,3 bn)
Direct insurance(Direktversicherung)(€ 43,8 bn)
Retirement fund (Pensionskasse) (€ 72,7 bn)
Support fund (Unterstützungskasse) (€ 22,8 bn)
Occupational pension schemes in Occupational pension schemes in Germany, Assets 2001 Germany, Assets 2001
7 %21 %
13 %
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• EET taxation • up to 2418 EURO p.a.• retirement fund, pension fund
• Flat-rate taxation (20 %) • up to 1.752 EUR
• direct insurance, retirement fund
• Riester incentives (subsidies and EET taxation)• increasing from from 525 to 2100 p.a. (2001-2008)
• direct insurance, retirement fund, pension fund
Taxation of occupational pensionsTaxation of occupational pensions
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OutlineOutline
1.1. The Life Insurance Market in GermanyThe Life Insurance Market in Germany
2.2. The German Statutory Pension SystemThe German Statutory Pension System
3.3. Reform projects in the pension fieldReform projects in the pension field
4.4. ConclusionConclusion
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• Further reforms in the statutory system: decreasing pensions levels, increasing the pensionable age
• Introduction of a full taxation system for old age pensions
• Reform of tax-incentives for private and occupational system: less bureaucracy or more regulation ?
New reforms ahead New reforms ahead
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Mission of the Rürup II Committee:
The Rürup II Committee should submit proposals by the autumn of 2003 with a view to stabilizing the financing of pension, health and long-term care insurance on a long-term and sustainable basis.
Report „Rürup II“ Report „Rürup II“
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Starting situation of the Rürup II Committee:
Without a new reform of statutory pension insurance the following developments are likely:
• Contribution rate will rise from 19.5% to 24.2% by 2030.
• Gross pension level will decline from 48.2% to 41.9%.
• Slow development of old-age provision operated on a funded basis.
Conclusion: Despite the so-called “great reform” in 2001 state old-age provision operated on a pay-as-you-go
basis is not ensured on a “sustainable” basis.
Implications of Rürup II for PAYG PensionsImplications of Rürup II for PAYG Pensions
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Dismissed proposals:
extension of contribution ceiling and of the category of persons liable to insurance
Positive proposals on statutory pension insurance:
• raise retirement age from 65 to 67 beginning in 2011
• modification of pension adjustment formula
Positive proposals on private pension insurance• Simplification of the Riester-Incentives
Proposals of Rürup IIProposals of Rürup II