A proposed amendment German pension guarantee rules could save the country’s insurers, Pensionskassen and Pensionsfonds from having to sell off further valuation reserves.
The German finance ministry has put forward a change to the calculation of additional interest rate guarantee buffers (Zinszusatzreserve), bringing in a cap linked to market rate changes.
The new calculation method could bring down the Zinszusatzreserve by up to two thirds, Friedemann Lucius, board member at Heubeck AG, told the German newsletter Leiter bAV.
In its proposal the finance ministry noted: “The interest rate guarantees for customers are already safeguarded enough to have the buffers increase at a slower rate.”
Since 2011 all insurance-based retirement providers – including Pensionskassen and some Pensionsfonds – have had to top up their actuarial reserves to ensure they can afford the guarantees promised to members as interest rates have fallen.
However, over the past few years the calculation method has been heavily criticised by the industry. To finance the buffers, valuation reserves had to be sold off. The proceeds in turn had to be invested in asset classes with insufficient returns.
According to the current calculation method the percentage that has to be put aside for the buffer is based on market interest rates measured over a 10-year period.
With continued cuts to the interest rate these calculations have led to providers accumulating reserves of around €60bn in total, according to the finance ministry BMF.
The proposal (available in German) is up for public consultation until 28 September.