German companies are finding the prolonged low-interest-rate environment, combined with an increase in life expectancy, “problematic” or “very problematic”, according to a survey by the DVFA.
The DVFA – an industry group for investment professionals – said nearly 90% of respondents to its survey were highly concerned that German companies were failing to adjust.
Currently, companies using German accounting standard HGB are able to apply a discount rate to their on-book pension obligations, or Direktzusage, of 3.73% or 4.12%.
The Bundesbank sets these rates using the seven-year average of a zero-coupon euro swap with a remaining maturity of 10 years or 15 years, respectively.
At the present time, these rates are higher than the one applied under IAS19.
But German analysts expect the HGB to drop considerably as low interest rates factor more heavily into the HGB’s calculation over time.
According to the DVFA’s survey, more than one-third of investment professionals (36.6%) fear that most German companies are failing to adjust to the new interest rate environment or increases in life expectancy.
Many in the industry are hoping proposed amendments to accounting standards will help companies cope.
Earlier this spring, the German pension fund association (aba) submitted a position paper to the government on this very issue.
The aba calls for increasing the calculation period for the discount rate from seven years to 12 years or more.
The government has approved the proposal, which could be included in the reform package linked with the implementation of the Portability Directive.
These amendments are expected to be presented to Parliament in November and could come into effect before the end of this year.
For more on the effects of accounting standards on Germany’s Direktzusage, see the guest viewpoint of former DVFA managing director Peter König in the November issue of IPE