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German finance groups outsource record level of pension liabilities

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German financial services companies transferred a record volume of pension liabilities from their balance sheet to BVV, the pension fund for the sector, in 2016.

In total BVV collected more than €100m in one-off payments from employers running book reserve pension schemes, known as Direktzusagen. Through this model, companies make annual pension payments directly from their balance sheets rather than holding assets and liabilities in a segregated entity.

The €26bn industry pension fund said this confirmed the trend for companies to outsource pension liabilities to external providers rather than keep them on their balance sheet.

The transfer of liabilities happens by way of companies making one-off payments to BVV, which then takes on the pension obligations.

According to a spokesman for BVV, in previous years payments made to the scheme were:

“The banking industry in particular has been in a period of upheaval over the past 10 years or so and in a way is doing a bit of soul-searching”

·         2011 – €5m

·         2012 – €2.9m

·         2013 – €26.8m

·         2014 – €40m

·         2015 – €5.9m

Mirko Buchwald, head of pensions management and products at BVV, told IPE that the record volume in 2016 was not due to any single event or development that happened during the year. Instead he said it was the reflection of a time-lag: companies, having been preoccupied with the repercussions of the financial crisis for several years, were now concentrating on core competencies and optimising their pension system as part of this.

The low-yield environment, operational considerations, and strategic aspects were combining to prompt more and more companies to question the value of running Direktzusage schemes, said Buchwald.

“The banking industry in particular has been in a period of upheaval over the past 10 years or so and in a way is doing a bit of soul-searching,” he said. “Things like pension provision are being closely examined as part of that.”

The move to outsource pension provision was part of a wider trend towards collective industry-wide pension funds, which the government’s second pillar pension reform is likely to reinforce, added Buchwald. BVV expects companies to continue to shift away from book reserve schemes, he said.

He said it was too early to say whether employers and unions in the finance industry would decide to set up one of the new defined contribution schemes, due to be introduced by the new pension legislation (Betriebsrentenstärkungsgesetz).

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