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German regulator misses out in EU directive

GERMANY - European pension funds looking to do business in Germany in the future will not be regulated by BaFin.

According to excerpts of a government draft law that transposes the EU pension funds directive, the German financial services regulator is set to lose some of its regulatory powers.

Funds' home regulators will retain supervisory power. But if a European pension fund fails to comply with standards enshrined in Germany’s occupational pensions law, BaFin can notify its counterpart in the relevant country.

Germany’s occupational pensions law requires pension funds to fully guarantee employees’ retirement savings.

The government draft law also requires all pension funds active in Germany to, if requested, disclose to what extent they are respecting socially responsible investment criteria.

And they must inform an employee of the exact level of pension savings and in what ways savings could be transferred when employment is terminated.

Finally, all pension funds active in Germany must, at the start of the contract, advise newly insured employees about any possible financial or insurance risks. Each year, they must also submit a brief report about their financial health and their ability to finance their obligations.

If German pension funds – whether Pensionkassen or the newer Pensionsfonds vehicle – plan to operate elsewhere in the EU, the draft law requires them to report their intentions to the relevant regulator.

The information required in this process includes the name of the EU country, the name of the company or companies served and the main characteristics of the pension fund.

The draft law’s excerpts were unveiled by Joachim Schwind, chief executive of Höchster Pensionskasse, during a pensions conference in Berlin sponsored by Handelsblatt. Schwind is also head of a lobby group for all Pensionskassen, or traditional German pension funds.

The German government is expected to transpose the EU pension fund directive into law by September 23.

The draft law does not, however, completely de-regulate the German pensions industry. German Pensionskassen will continue to be treated by BaFin as insurance type vehicles, meaning that their 35% equity investment cap will be maintained.

German Pensionsfonds will – like other similar vehicles in Europe – be able to invest in equities according to the so-called ‘prudent person’ rule.

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