GERMANY – A leading pensions adviser, Richard Herrmann of consulting firm Heubeck AG, has outlined a strong future for German Pensionsfonds.
The funds - Germany’s answer to the equity-oriented Anglo-Saxon pension fund - should double their assets every two years now that the government has boosted their competitiveness, he said.
In implementing the EU pension fund directive last July, the government adjusted the Rechnungszins – a figure used to calculate how pension obligations can be met – for Pensionsfonds.
As a result, considerable liquidity is no longer required when companies remove their pension obligations from their balance sheet and transfer them to a Pensionsfonds.
On-balance sheet pension assets, known as the Direktzusage, account for almost 60% of the €367bn in total corporate pension assets.
“Although they have admittedly had a slow start, I think the government’s adjustment of the Rechnungszins is the breakthrough that Pensionsfonds needed,” Herrmann said.
“I wouldn’t be surprised if the vehicle doubles its asset volume every two years,” Herrmann told IPE during a conference in Königswinter dealing with the future of Pensionsfonds.
Launched at the start of 2002, Pensionsfonds were intended to be an improvement on Pensionskassen, Germany’s traditional pension fund that is barred from investing more than 35% in equities and 5% in hedge funds.
Yet because of the Rechnungszins a well as other competitive disadvantages like formerly bearish equity markets, Pensionsfonds have made little impact so far. At last count, they had taken in €400m in pension assets compared with €73bn for Pensionskassen.
Pensionsfonds, like contractural trust agreements (CTAs) are regarded by international rating agencies as an effective way of fully funding pension liabilities. However, big German companies like Deutsche Bank, Lufthansa, Siemens, MAN and E.ON, have so far shunned them in favour of CTAs.
Herrmann said that this was mainly because big companies could easily manage the great cost and complexity that went with building CTAs.
“On the other hand, I think Pensionsfonds have great potential among German small- and midsize enterprises, not least because they can serve as a less costly and complex solution,” he added.