Chat with Matthias Liermann, BVI President: Pension savings, political upheaval, and fund nuts and bolts
Fact-based rebuttal of pension fund criticism
Matthias Liermann, head honcho at the Bundesverband Investment und Asset Management (BVI), the Investment Association of Germany, chats with us about pension savings, the retreat of insurers, and the coexistence of active and passive fund products. Buckle up as we dive into the looming question of what's happening with pension savings after the fall of Germany's traffic light coalition and how privates investors should make the most out of their savings.
Q: Mr. Liermann, pension savings is one of the hottest topics of our time. What's going on in pension savings since the fall of the traffic light coalition, and what's next from the BVI's point of view?
A: Well, it's time to keep pushing, and that's exactly what we'll do. A lot of progress has been made, especially raising awareness about the need for action in all three pillars of pension savings. The pension savings account concept has almost become a household name. We've been fighting, educating, and making progress in recent years. So we're not burying our heads in the sand; we're moving forward.
Q: There seems to be a government breakdown, which means slow progress once again. Are you frustrated?
A: Of course, it's frustrating, but the foundation has been laid, and we'll build on it. The topic of pension savings has had support across political lines. We're optimistic that with a new government, we can keep making progress.
Q: Many people feel uncertain about private pension savings. What advice do you have for these folks?
A: Given the demographic change, it's more important than ever to save privately. State subsidies would be great to motivate even more people, but at the end of the day, we all have to do our part. You can't say, "I'm not saving because there's no subsidy." Private savings are essential, and everyone needs to recognize this for themselves.
Q: Insurers have been critical of the fund pension as not being an adequate product for guaranteeing a pension. Has this criticism harmed your cause?
A: Nah, on the contrary. This criticism has been proven false with facts. We at BVI conducted a study that showed that in most cases, the financial gap until the end of life is minimal. Insurers often argue that these people would be a burden on the state, but that's just a distortion. In reality, without fund savings, these people would not be better protected either. Our study clearly showed this, while the insurers' counterarguments proved to be unfounded. This debate has actually strengthened our position.
Q: Insurers don't seem too keen on the concept of the pension savings account and the new legal possibilities. Why?
A: That's a long story, but the bottom line is that pension savings has historically been an insurance stronghold. Now there's an alternative that is more efficient for many people. Insurance products cause high costs that reduce performance. For around 96% of people, capital saved through fund products is sufficient until the end of life, and on average, there's even a significant amount left over. This makes funds an attractive alternative, and of course, the insurance industry doesn't like that.
Q: What's the BVI's take on the first pillar of pension savings, the reciprocal contract?
We need to make progress in all three pillars of old-age provision. Financing through debt is not sustainable in our view. It's more sensible to invest a portion of the contributions flowing into the pension fund on the capital market – as Sweden has already successfully done. Whether this happens in the first pillar through a sovereign fund or privately managed funds can be discussed. We as an industry say: We have the expertise to manage this more efficiently.
Q: Regarding private provision, ETFs are gaining ground. The debate between active and passive has been going on for a long time. What's your stance on the situation?
Both approaches have their justification. ETFs are gaining popularity because they're cheap and transparent. ETF is a buzzword for many. This is a good development, but it's important to understand that ETFs rigidly follow the index and can't take advantage of market inefficiencies. Active funds, on the other hand, offer the option of outperforming.
Q: The arguments have been the same for years. Has anything changed in the debate?
The debate has largely subsided. Around ten, fifteen years ago, it was more present, driven by concerns about systemic risks from the ECB. However, experiences such as the financial crisis have shown that neither setbacks nor strong inflows cause disruptions. ETFs keep growing.
Q: Does it matter to the industry which product investors choose as long as it's a fund?
It's important that investors understand what they're doing. Whether an ETF or an active fund is better depends on wealth situation, life phase, and goals. Many don't realize that an ETF on the MSCI World is heavily weighted towards US tech stocks. Financial education in Europe needs to be improved urgently.
Q: Are ETFs at a disadvantage when it comes to sustainability?
Not necessarily. There are now many ESG indices that can also be represented as ETFs. Around 20% of ETF inflows in Europe flow into ESG or thematic funds, so there's clearly demand, and these products are competitive.
Investing in a pension savings account could help private individuals secure their financial future, given the demographic change and the potential slow progress in government proceedings. As the debate between active and passive funds continues, it's essential for investors to understand the differences and choose what best aligns with their wealth situation, life phase, and financial goals. In the landscape of business and finance, the BVI advocates for making the most out of pension savings by investing efficiently, whether it be through ETFs, active funds, or other fund products.
