Jörg Arnold has been in charge of the German business of the Swiss money giant Swiss Life since July 2017. In an interview with FOCUS online, he says why he doesn’t trust the state when it comes to the statutory pension, why he expects the recession to be less severe and what needs to be improved in terms of sustainability.
Mr. Arnold, the savings bank president warns that Germans are finding it increasingly difficult to put money aside for old age. Inflation and rising energy prices are taking their toll. How do you assess the situation?
Jörg Arnold: It is quite demanding. Therefore, the focus should first be on how I optimize my expenses. So where can I relieve my private household to save money.
Do you have any tips?
Arnold: Our consultants definitely. We prepare around 150,000 financial plans for our clients each year and the younger generation is far more willing to give us insight into their finances. That helps enormously. So I don’t need to give any advice, but I do have an urgent recommendation.
The what?
Arnold: Don’t cancel retirement plans because of inflation. After all, this is about a carefree life in retirement. Don’t do without disability insurance either, that’s saving at the wrong end. Especially since they pay significantly higher contributions when they are older and want to sign a new contract.
Do you actually hear a lot from the base, i.e. from those who speak to your customers?
Arnold: I have regular conversations. To do this, I meet customers at random. I also meet with advisors according to the same principle. And they recently reported that discussions with our customers are taking significantly longer than they used to. Our clientele is also unsettled. I find it exciting that two trends are emerging.
Which I am sure you will now tell me.
Arnold: On the one hand, Riester hardly plays a role anymore, the share has dropped from 15 percent to less than four percent. And on the other hand, home savings is booming, the deals have doubled. Higher interest rates are creating a special boom here.
So your business is running smoothly despite all the global difficulties?
Arnold: We had two very strong years in 2020 and 2021, in which we each grew more than 20 percent. We will also generate a solid financial year in 2022.
What is your growth based on? Is it equally divided between men and women?
Arnold: It is important for me to emphasize that 80 percent of our new customers are millennials, i.e. very young customers. And the proportion of women is growing, which we very much welcome. Today’s women are well advised to act in a self-determined manner and to make provisions in good time. The reality is that around 50 percent of marriages end in divorce and unfortunately women continue to earn lower pension entitlements on average. This is where preventive care can help. The fact that more and more female financial advisors are now working for us helps.
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How do you assess the economic prospects in Germany at Swiss Life?
Arnold: Our chief economist expects a milder recession. The difference to earlier phases of weakness is that the labor market should not be affected as much. The demographic development is having an effect here, the baby boomers will soon be retiring. Labor is hard to find.
As a result, wages continue to rise and the danger of a wage-price spiral grows?
Arnold: That’s one of the problems and inflation can therefore also be supply-driven. Rising energy prices add fuel to the fire.
What is the inflation scenario in your house?
Arnold: We can certainly get a peak of ten percent inflation compared to the previous year when the tank discount and the 9-euro ticket expire. But energy prices will not rise so sharply every year, so we are currently expecting an inflation rate of around two percent again from 2024.
Has Corona changed anything in old-age provision?
Arnold: The demand for stocks has increased, especially among Generation Z. There are generally more custody accounts, ETFs and funds are in demand, as are trading apps. Young people grew up with low interest rates, so the savings book is no longer of great importance.
Is there a generation of gamblers or serious investors growing up?
Arnold: First of all, it is important that there is an openness to equities and that products such as unit-linked insurance solutions on an ETF basis increase in demand. But we also see that the security of the money invested is still the most important component for Generation Z.
The stock is considered a good product for retirement planning due to high returns in the past. But doesn’t the state have to do more to promote this? With a view to the double stop line – the level of statutory pension insurance does not fall below 48 percent and the contribution rate does not rise above 20 percent – this is not possible otherwise.
Arnold: The state has to do a lot more, because pension insurance really can’t go on like this. We may have peace until 2025, but what comes after that? The pension is already being subsidized with 100 billion euros a year, and that will continue to rise.
What do you suggest? Sweden is often taken as a model country.
Arnold: The sovereign wealth fund in Sweden invests part of the money in shares and flows entirely into the first pillar, i.e. into the statutory pension scheme. This pillar contributes 55 percent to retirement income. The rest comes from company pension schemes (Pillar 2) and private pension plans (Pillar 3). In Germany, Pillar 1 is weighted significantly higher at currently 70 percent.
Now the state fund is supposed to come in Germany.
Arnold: Exactly, and as a result we lose the variety of offers, which is counterproductive. Above all, we must strengthen company and private pension schemes! I don’t know much about the sentence “The state will fix it”. If the Economics Ministry launched a financial magazine, not all private media would go out of business. And it wouldn’t be of better quality either.
What would be good ideas for Pillars 2 and 3?
Arnold: Riester was a reasonable system, albeit in need of reform. The contract was lucrative for savers, including government allowances, it bore interest of 4 to 5 percent. But the guarantee of the deposited money has too limited the possibilities in times of low interest rates. But I can only warn against terminating an existing Riester contract now because of high inflation.
But the problem was the high cost.
Arnold: That’s true, but these were not primarily due to the high commissions, but primarily to high administrative expenses. And as an industry, we have also signaled to politicians that we want to reduce costs.
I would like to touch on one more topic: sustainability. Is it in high demand for retirement products?
Arnold: As long as it doesn’t mean giving up returns, yes. But not everyone has understood the discussion about the need for sustainability. Spontaneously, only five percent bring together sustainability and old-age provision, although there is a lot of potential here. Too many people say that we can stop global warming by separating our garbage and buying organic products. We have to take people by the hand and do educational work.
Since August 2nd, the issue of sustainability has also been a legal requirement for advice.
Arnold: Yes, we now have to actively ask about sustainability preferences. We like to do that too. But first of all, it would make sense to define exactly what is sustainable. There is a high level of willingness for the topic, but there are also many question marks. CO2 emissions are harmful, but what about lithium production for batteries, to give just one example. It is anything but sustainable. But I would like to emphasize one thing: our industry can contribute a lot to sustainability if the framework conditions are clearly defined. We are willing to do that.
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