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

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 2 Outline 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. 3 German Insurance Markets 2002 German Insurance Markets 2002 Premium in EURO million / Growth rate 2002 Life 65.1 EURO bn. + 4,5 % Health 23.1 EURO bn + 6,4 % Property 47.2 EURO bn + 3,1 % Accident 5.6 EURO bn. + 1,5 % premium total: EURO bn.

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 4 Top Ten of Life-Insurers 2002 Premiums in EURO bn.

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 5 Life: Gross premiums written in EUR million **) estimated business trend %

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 6 Life: Benefits in EUR million *) estimated business trend

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 7 New business by type of insurance New business by type of insurance Endowment insurance, annuity insurance and unit-linked life insurance, number of contracts in %

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 8 Life insurance by international comparison Share of total life premium 2001 Source: CEA

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 9 Life insurance by international comparison

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 10 Benchmarking pensions *) *) Income structure of 2-Persons-Pensioners-Households Source: Miegel/Börsch-Supan (1999)

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 11 Outline 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. 12 German pension system: 3 pillars statutory pension insurance (PAYG) occupational pensions life insurance

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 13 Pension provision in Germany: Details 2% 10% 17% 5% 66% Supplementary pensions for public sector employees Civil service pensions Life insurance Occupational pension schemes State pension system Source: GDV, Alterssicherungsbericht 2001

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 14 Development 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. 15 Development of contribution rates to public pensions Source: VDR *: estimation

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 16 Social security contribution ceiling (1960 – 2004) Old and new Länder, per month Source: VDR

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 17 Part of public pensions financed by the Federal Government Part of public pensions financed by the Federal Government until 1990 West-Germany, since 1991 Germany Source: VDR

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 18 Demographic perspectives for Germany men (new Länder) men (old Länder)women (new Länder)women (old Länder) Source: Birg/Flöthmann, 2000

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 19 Population in Germany: age-groups 0 to to 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. 20 Development of old age dependency ratio Immigrated Population Population in Germany German Population Source: Birg/Flöthmann, 2000

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 21 Outline 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. 22 SGB Pension-Reform I: 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.

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 23 Retirement Savings Law (AVmG) introduction of Riester scheme for supplementary (funded) pension provision (2 nd or 3 rd pillar) => voluntary scheme strengthen occupational pensions introduction of pension funds in Germany Pension-Reform II: increasing private (funded pensions)

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 24 Riester conditions for individual 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

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 25 Riester market New business in Riester products Number of contracts for each quarter

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 26 Riester 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. 27 Source: aba Arbeitsgemeinschaft für betriebliche Altersversorgung e. V. Total 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 Germany, Assets % 21 % 13 %

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 28 EET taxation up to 2418 EURO p.a. retirement fund, pension fund Flat-rate taxation (20 %) up to EUR direct insurance, retirement fund Riester incentives (subsidies and EET taxation) increasing from from 525 to 2100 p.a. ( ) direct insurance, retirement fund, pension fund Taxation of occupational pensions

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 29 Outline 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. 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

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 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

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 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 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 Pensions

Gesamtverband der Deutschen Versicherungswirtschaft e.V. 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 II