Germany allows backdated changes to discount-rate calculations
The German government has come to a long-awaited decision regarding discount rates, or Rechnungszins, used to calculate pension liabilities under local accounting standard HGB.
It extended the period from which the rate can be calculated from the previous seven years to the previous 10, to include pre-crisis years with higher interest rates.
It has also given companies the option to apply the new HGB provision to their 2015 annual reports.
The new regulations, however, include a ban on increasing dividend payouts that could be afforded as liabilities go down.
According to consultancy Mercer, the amendments to the calculation period will set the discount rate at 4.1% for 2016 instead of 3.37%.
The consultancy, however, argued that “companies are not profiting” from this new regulation.
It deemed the new regulation “a bad compromise” that would “considerably increase stress among those preparing balance sheets”.
It pointed out that the extension of the calculation period was “considerably weaker” than the industry expected, as the original draft contained an extension of 15 years, while the government had been considering a 12-year extension for some time.
Mercer warned that companies would now have to make two parallel calculations applying discount rates calculated on a seven-year period and on a 10-year period.
Over the last 12 months, many industry representatives have called on the government to come to a decision on the issue, in light of the low-interest-rate environment.
In November, pension fund association aba published calculations estimating that the discount rate companies can apply to their pension buffers would fall below 3% by 2017 from currently just over 4%, if no action were taken.
This, in turn, would have meant companies with on-balance-sheet pension obligations would have had to pay an additional €35bn-45bn in total annually over the next three years to offset this decrease.