GERMANY - Financial services regulator BaFin has voiced support for the idea of extending the EU’s proposed new capital adequacy requirements for insurers, known as Solvency II, to German pension funds.
According to BaFin, because such vehicles as Pensionskassen (traditional pension fund) and Pensionsfonds (equity-oriented vehicle) face the same risks as insurers, the same rules should apply.
In applying Solvency II, BaFin has suggested a scenario with two parameters, namely the Solvency Capital Requirement (SCR) and a Minimum Capital Requirement (MCR).
According to BaFin, if an insurer’s core capital falls below a specific MCR level, the regulator must become more proactive. If on the other hand, an insurer remains above a specific level for SCR, less supervision is required.
A BaFin spokesman said that while the regulator backed Solvency II for German pension funds, it had not yet made any legislative recommendations to the German finance ministry.
“Considering that it is not even decided on the EU level how Solvency II will be applied, it wouldn’t be appropriate of us to do that. The debate is still in the early stages,” the spokesman said.
Last autumn, Henrik Bjerre-Nielsen, chairman of the EU insurance and pension committee, said he believed Solvency II would be extended to pension funds in Europe. The new regime is to take effect from 2010.
The idea of subjecting German pension funds to Solvency II drew words of caution from the industry.
Klaus Stiefermann, managing director of German occupational pensions association aba, said that in deciding how to apply Solvency II, “regulators should bear in mind that German pension funds already provide a very high degree of security.”
“In Germany, employers who offer corporate pensions must by law honour those pensions, regardless of what form the pensions are administrated with,” Stiefermann told IPE from Heidelberg.
“It doesn’t matter if the employer chooses to finance pensions via book reserves or an external fund. It has to make sure that it has enough cash (or insolvency protection) to ensure that the pensions are honoured,” he added.