Vying to Run Germany's New Pension Fund: Bundesbank and Kenfo

Two sides now want to run Germany's huge new pension fund. The Bundesbank, the country's central bank, has stepped forward. But a state foundation called Kenfo already oversees €27 billion in assets and wants the job too. The choice will help shape one of Europe's largest long-term capital pools.

A Race Between Two Giants

The Bundesbank has experience running a central bank, but it does not currently manage a big pension fund. In contrast, Kenfo has a track record. Its CEO, Anja Mikus, said: "We would like to contribute to the success of the capital pension." Kenfo's average return since it was fully funded in 2019 is 12%.

How the Fund Will Work

Every year, more than €30 billion will flow in from public sources. Operating costs cannot exceed 0.1% of assets each year.

The pension fund could invest in early-stage German companies and expanding firms via venture capital, focusing on defense, technology, and artificial intelligence. Additionally, the fund might support the development of capital markets throughout the EU.

The final manager will be decided by legislation that has yet to start.

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Chancellor Friedrich Merz's coalition plans to present the full pension reform package by the end of next week. The Labor Ministry declined to comment on behind-the-scenes talks. A spokeswoman said: "The precise implementation will be determined through the legislative process, which remains to be seen."

Why This Reform Matters

Germany's pension system is under pressure. Average pension levels are eroding. This reform is one of several measures to shore up the system. Additional measures involve raising the retirement age step by step and tightening restrictions on early retirement.

Jens Südekum, who advises Finance Minister Lars Klingbeil, said: "Policymakers certainly need to provide the new fund with guidelines, but they must not, of course, interfere in its day-to-day operations."

As Germany's population ages, the pay-as-you-go system faces mounting deficits. The new capital-funded pillar is intended to alleviate pressure by building a reservoir of investment returns over decades.

The choice between the Bundesbank's conservative approach and Kenfo's proven track record will be a key decision for policymakers. The low cost cap of 0.1% keeps fees minimal, and annual inflows of €30 billion will rapidly build a substantial asset base.

Broader Context for the Reform

With an aging population, fewer workers per retiree leads to growing deficits. The new capital-funded pillar is intended to supplement the state pension, providing an additional source of retirement income through long-term investment returns.

By pooling billions of euros annually, the fund could become a major force in European capital markets, mirroring similar sovereign wealth funds in other countries.

What to Watch

Germany is grappling with an aging population, which puts increasing strain on its pay-as-you-go pension system. The new capital-funded pension aims to supplement traditional state pensions and generate long-term investment returns.

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