Cathedral of capitalism:
According to asset manager Reinhard Panse, the New York Stock Exchange is also a good place for old-age provision
Photo: A2800 epa Peter Foley/ dpa
manager magazin: Mr. Panse, the subject of "stock pensions" is currently the subject of heated debate. The federal government is taking up its plans from the coalition agreement and has given the go-ahead for so-called generation capital, a fund worth billions that is to invest in the capital market and thus stabilize pension contributions and the pension level in the long term. What do you make of it?
Reinhard Panse:
Even if the federal government's plans have weaknesses, it's good that the topic is finally being addressed.
It seems downright absurd how long politics in Germany has been dormant, many countries have been doing this for a long time, not just Sweden.
If you also hear the criticism from left-wing and green politicians that old-age provision is being gambled on the stock market, then that shows an unbelievable ignorance of the subject.
Statements like this are downright embarrassing, so all you can say is: Look at the data.
Which dates?
The long-term performance of shares as well as the risk figures.
In the past, equities have outperformed government bonds on average by around 4 percentage points per year in real terms.
For example, in the last century, from 1900 to 1984, the stock market produced a real return of 4.5 percent per year.
On the bond market it was only 0.18 percent.
Our calculations also show that equities are doing better than government bonds, especially in states that are experiencing financial problems.
This was the case, for example, in Germany, Italy and Japan after the Second World War.
In view of the currently high level of public debt in many places, it is unlikely to be any different in the coming decades.
What about the risk?
It's a misconception that stocks are riskier than bonds, for example.
This only applies to very short periods of time.
The statistics show: Over a period of one year, the real range of fluctuation in returns on the stock market is around 19 percent.
For government bonds it is 12 percent.
The ratio is already reversed in periods of ten years: then the fluctuation in government bonds falls from 12 to 7 percent.
For stocks, it goes down from 19 to 5 percent.
This shows how ridiculous the criticism from the left is.
Incidentally, Karl Marx already demanded that factories belong to workers.
This is exactly what equity-based pension plans bring.
I'm sure: Shares are the ideal form of old-age provision.
You can't necessarily draw conclusions about the future from the past, at least at the moment interest rates are rising and bonds are becoming more attractive again.
"Shares are the ideal form for old-age provision"
Even in today's situation, it would be sheer madness not to rely on stocks for old-age provision.
Highly indebted governments depend on central banks to always help and keep interest rates low.
Even when interest rates are well below the rate of inflation, action must be taken to ensure that government bonds do not fly in the face of the countries.
In every crisis there are money printing campaigns, which further increases the risk of inflation.
It is therefore clear that real returns on pensions will continue to be no better than they were in the 20th century.
The opposite applies to stocks: they tend to be favored by politicians in crises.
In what way?
Politicians know how important a functioning corporate sector is.
That is why there is a political willingness to support companies before they go bankrupt on a large scale.
What about real estate, isn't it also a good basis for old-age provision?
Real estate isn't really good for that.
Because they easily become a political instrument, especially in Germany with its high rent rate.
Measures against property owners are well received by voters.
Let's talk about the government's plans, generational capital. What weaknesses do you see?
The concept even has major weaknesses.
First of all, the planned volume of ten billion euros per year is far too low.
This will only make a small contribution to mitigating the increase in contributions.
It is definitely not enough.
How big do you think the fund should be?
Serious calculations speak of 300 billion euros from the start.
Then he would have the chance to ensure stable contributions for a few decades.
Where will the money come from?
For many years, the state could issue 30-year bonds at 0 percent.
During this time, the federal government would have had to issue several hundred billion euros in long-dated federal bonds.
She would then have invested the money in a global share ETF.
It can't go wrong.
If I have 0 percent capital costs for 30 years, it can't be that I don't build up enormous substance over the next 30 years.
Swedish example and German compromise
AreaExpand Stock Annuity
The FDP in particular advertised in the 2021 federal election campaign that it wanted to introduce a
share pension
in Germany based on the Swedish model.
As early as the 1990s, the Scandinavian country founded the so-called AP7 fund, which as a new element of the Swedish pension system invests its capital in shares, mostly via index funds investing worldwide.
Enthusiasm: The Swedes benefit from the performance of the stock market when it comes to pension provision
Photo: Line Skaugrud Landevik/ dpa
Participation in the share-based pension scheme is compulsory for every pensioner in Sweden.
Either his contributions flow into the AP7 fund or into one of many other approved equity funds, which then also end up in the personal account.
The Swedes do not pay the contributions for the share pension in addition.
In fact, since the introduction of the AP7 fund, the contribution to the country's statutory pay-as-you-go system has fallen by the 2.5 percent that now flow into shares.
AreaThe generational capitalexpand
In the 2021 coalition agreement, the SPD, Greens and FDP also agreed to start “partially funded statutory pension insurance”.
However, the liberals were not able to push through with the plan for a share pension à la Sweden.
Enlarge image
Compromise: FDP leader
Christian Lindner
was not able to push through with the plan for a share pension in the coalition with the Greens and SPD (pictured from behind: Federal Chancellor
Olaf Scholz
).
Photo: IMAGO/Jens Schicke
Instead, the federal government gave the go-ahead for so-called
generational
capital in January of this year .
Berlin wants to build up a base of ten billion euros by borrowing and invest in the capital market.
According to the plans of Finance Minister
Christian Lindner
, another ten billion will flow into the fund every year for 15 years.
From the mid-2030s, pension contributions and the pension level are to be stabilized.
The management of the generational capital is to be transferred to a public law foundation to be set up specifically for this purpose.
The zero interest period is now over for the time being.
The strategy would still pay off now.
The German state continues to borrow at interest rates well below 2.5 percent, even for 30-year government bonds.
That's less than half the realistic expected return on stocks.
I don't think policyholders and investors would see that negatively.
Singapore showed the way: there, a high national debt was accepted in order to set up a sovereign wealth fund.
Such borrowing could in itself lead to a rise in interest rates.
The federal government would have to proceed cautiously.
As long as we can issue large amounts of government bonds without interest rates going up, we should do so.
Then we will have 300 billion in shares of German, American and Japanese companies, and everyone will understand that this is worth more than the debt that was taken out for it.
In fact, the generational capital plan also envisages the federal government incurring debt to fund it. At the same time, however, this reduces the possible return on the stock market.
After interest costs, the net return on the stock market is still around 4 percent worldwide, and even more than 5 percent per year in Europe.
That's very neat.
What else do you dislike about generational capital?
In the planned foundation structure, the state will continue to have access to the fixed assets.
It cannot be ruled out that politicians will intervene if things get tight.
The Swedes, on the other hand, have done it cleanly and honestly: every Swede has a personal depot that the state cannot access.
Sweden is often cited as a role model when it comes to retirement provision via the stock market.
Rightly so.
The easiest thing would be for the federal government to simply go to Sweden, have the model demonstrated there, and ask the Swedes to sell us the software.
The Swedish AP7 fund has been generating double-digit returns per year for well over 20 years.
Every Swede thus has a share investment spread around the world, which is already in the six-digit euro range for many small earners.
Nobody in the country needs to worry if Sweden goes bankrupt or if the euro blows up.
The Swedes' AP7 fund is indestructible.
"Sweden's AP7 fund is indestructible"
A model for Germany?
Of course.
Let's assume that the pension contributions from employees and employers in this country flowed completely into the stock market, for example into an ETF that invests worldwide.
Assuming a return of 6 percent per year and 45 years of contributions, someone who earns just EUR 35,000 gross would have assets of EUR 2.2 million when they retire.
With this alone, around 50,000 euros in dividends can be achieved every year.
Would you put all of your retirement savings on an equity basis?
Yes, I would phase out the pay-as-you-go system in the long term.
It has shown that it does not work and already requires government subsidies of over 100 billion euros a year.
It leads to a reduced incentive to have children and a high incentive to work as much as possible.
So it's not stable.
Instead, it would have to succeed in gradually converting the entire pension insurance contributions into a funded form, step by step.
So every German is forced to become a multiple millionaire.
However, the foundation construct you criticize is already being used in another German state fund, namely the Kenfo fund, which is intended to finance the liquidation of the nuclear industry. It's been working well there so far, and the fund is generating decent returns.
That's correct.
The Kenfo Fund also employed good people to manage it.
You could actually use the same team for generational capital.
They're doing a good job.
You obviously don't think much of the statutory pension system. So what is your advice to policyholders, what should they do?
That's simple.
Set up a savings plan and invest a few hundred euros a month in one or two broadly diversified equity ETFs, for example 40 percent in a Europe ETF and 60 percent in a global ETF.
Saving with these funds is particularly inexpensive, and speculating with individual stocks makes no sense anyway.
If the state would also ensure that capital gains are tax-free after more than ten years, that would help.
