gesamtverband der deutschen versicherungswirtschaft e.v. private insurance and old age provision in...

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


2

OutlineOutline

1. The Life Insurance Market in Germany

2. The German Statutory Pension System

3. Reform projects in the pension field

4. Conclusion


3

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.


4

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


5

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 %


6

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


7

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


8

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


9

Life insurance by international comparisonLife insurance by international comparison


10

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


11

OutlineOutline




4. Conclusion


12

German pension system: 3 pillars German pension system: 3 pillars

statutory pension insurance (PAYG)

occupational pensions life insurance


13

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


15

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


16

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


17

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


18

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


19

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.



20

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



21

OutlineOutline




4. Conclusion


22

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.


23

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)


24

““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


25

““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


26

““Riester” marketRiester” market

Reasons for unsatisfactory spread:

• inadequate consciousness of the need to make individual provisions

• economic situation: high unemployment, declining income

• complex subsidization


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 %


28

• 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


29

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


30

• 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


31

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“


32

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


33

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

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pension funds folie

vdr folie

conclusion folie

paygsystem folie

cea folie

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german pension system

life insurance market