New Concept For a More Transparent Pension Plan

Consumers often consider private pension plans not to be transparent. The existing regulation to reveal all costs of pension plan contracts mostly miss the point of comparing different products. Main reasons for this are the complex products and cost structures on the one hand, and too much and insufficient standardised detailed information on the other hand. A higher transparency can be made by the standardisation of information. These are the main findings of a study conducted by the Centre for European Economic Research (ZEW) in cooperation with Institute for Financial Services e.V. (iff) and infas Institute for Applied Social Sciences on behalf of the German Federal Ministry of Finance.

To make private pension plans more costumer friendly, the study recommends a model with three levels to inform about a product. This pyramid model has the advantage of providing basic orientation on the first level and further information on the other two levels. A short and easy to understand description of the most important information about the product, e.g. type of product, provider, guarantee and risks, costs and advantages, is to be on the first level.

The costs for the investors in the savings period are to be summarised in one key figure indicating the reduction of returns. All costs during the pension are to be indicated in one cost quota, based on the pay offs.

On the second level, further information on the product's eligibility for different investor groups, the investment's structure and strategy are to be indicated. The product's eligibility is to be differentiated by age groups and risk.

The study suggests that the third level contains information on the development of capital or returns in a standardised outline. Examples of returns and simulation results which most likely will be the new standard on the market in the future can be displayed on the third level. The study is based on a broad theoretical and empirical analysis of problems on the market for pension plans and its development perspectives. Providers of pension plans as well as costumers were involved in the development perspectives via surveys and workshops. Moreover, international examples of product information were analysed.

For further information please contact

Dr. Peter Westerheide, Phone: +49 (0)621/1235-146, E-mail: westerheide@zew.de

Dr. Achim Tiffe, Phone: +49 (0)40/309 691 16, E-mail: achim.tiffe@iff-hamburg.de

Dr. Johannes Leinert, Phone: +49 (0)228/3822-415, E-mail: j.leinert@infas.de