Weathering the financial crisis with only one major pension-related insolvency does not mean Germany sat still, with regulatory changes coming from inside and out, writes Jonathan Williams

German pension funds survived the financial crisis without too much upheaval and broadly passed muster at the end of 2009 when only six of over 150 Pensionskassen failed regulatory stress tests, down by half compared to the year before.

At the time, the regulator BaFin's annual report noted that none of the Pensionskassen had failed by much, with the organisation's head Thomas Steffen saying that they had weathered the crisis well "because of their long-term conservative investments, risk management, buffers and," he added, "a vigilant supervisor."

However, the stability of the system did not mean the country was able to avoid changes to regulation, partly promoted by BaFin, and partly coming from the EU.

In what could be the biggest change to the German pension landscape since Pensionsfonds were introduced as the system's fifth pillar, the European Court of Justice ruled that German local authorities must now tender pension services.

The ruling, which comes after a court case that lasted over a year and a half, dictates that local authorities with more than 2,000 employers will have to tender their occupational pension services. As a result, the country's social partners will have to amend current agreements to include a tendering process.

A further change, one that came into force in September last year, now details exactly how spouses are to be treated in case of a divorce.

Under the new, the Versorgungs-ausgleichsgesetz (VersAusglG), occupational pension providers must supply divorce courts with details of how large a share of the pension each party is entitled to. According to Towers Watson, the difficulty herein lies not only with the calculation, but also being able to explain in clear and concise terms how the sum is calculated.

A survey by the consultancy back in June found that around 80% of pension funds had talked to consultancies about how best to implement the measures.

Under the new rules, the fund is also free to decide how a divorcee should treated. They can either be retained as a separate customer and kept on the books as a deferred member or, alternatively all funds, can be transferred to an external fund.

The survey found an almost even split between the two methods, with transferring funds to an external provider narrowly winning out with 51%.

Additionally, the way in which the pension insolvency fund PSV calculates its annual levy has been questioned, after it increased almost fivefold from 0.3% to 1.42%.

Klaus Stiefermann, secretary general of the ABA says: "We've witnessed an ongoing discussion about the way the PSV fees are calculated. Should they take risk into account?

"We hasten to add that the discussion has yet to reach a point where legislatory changes could be suggested. Nevertheless, important discussions took place, highlighting some of the changes over the last few years."

While the chairman of the federation of employer representatives (BDA), Dieter Hundt, praised companies for sticking to their responsibility and paying the increased levy, BDA members have lobbied for a different approach, first suggested in October.

The BDA wanted investment risk to be taken into account when calculating each organisation's levy based on international accounting standards IAS19, but later amended the proposal to take into account the Bilanzrechts-modernisierungsgesetz (BilMog), which roughly brings German domestic accounting standards into line with current international rules.

However some, such as Michael Hessling, a board member at Allianz Lebensversicherung, have warned that the changes could see pension liabilities soar by almost 30% when the rules are enforced for the first time in 2010's balance sheet.

Additional changes to legislation include new guidelines for investment companies (KAGs). Previously managed by the same rules that covered banks (MaRisk), KAGs now find themselves forced to implement stress tests under InvMaRisk.

Arno Kempf, a partner at PricewaterhouseCoopers, earlier this year insisted that InvMaRisk would benefit everyone, as KAGs would be wise to live and die by the mantra that client risk was their risk. Kempf added that the quality of risk control had increased over the past few years.