GERMANY - Pension liabilities are set to increase by up to 30% by the end of the year as reforms to domestic accounting regulations (HGB) take effect.

The prediction was made by Michael Hessling, a board member at Allianz Lebensversicherung, as he considered the impact of Germany's new accounting regulations under the Bilanzrechtsmodernisierungsgesetz (BilMoG).

"The accruals for pension liabilities should rise by 20-30% when BilMoG is first implemented," Hessling told Börsen-Zeitung last week.

The BilMoG reforms aim to bring Germany in line with International Financial Reporting Standards (IFRS). The previous HGB rules did not take salaries and pension  increases into consideration when calculating liabilities.

However, not all observers agree that German companies will increase their provisions immediately. Alfred Kussmaul, head of accounting for Towers Watson in Germany argued that decisions on how to proceed may not have even been made.

"Currently, it is likely that most companies will wait until the end of their 2010 fiscal year to decide," said Kussmaul, referencing the decicison of the regulator BaFin to allow a 15 year grace period for implemention of the new regulations.

He argued that the real question was how companies would account for the increased cost of the liabilities.

"What we will have to wait to see is if the majority of companies will amortise the changeover costs immediately in 2010 or in installments through the profit and loss account," he said.

Hessling also criticised the restrictive nature of contractual trust agreements (CTA), arguing they had been problematic for some during the downturn.

"Companies are only able to access the funds in a CTA for very specific reasons, but at the same time have to carry the full risk involved with the asset class," he said, noting they were now less popular.