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Germany's BDA wants risk-based pensions levy

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  • Germany's BDA wants risk-based pensions levy

GERMANY - Switching to a risk-based levy for the German pension insolvency lifeboat Pensionssicherungsverein could help to considerably reduce contributions to the scheme in the long-run, according to Alexander Gunkel from the German federation of employer representatives (BDA).

All companies with non-insurance based pension plans have to pay into the PSV at present, which calculates levies according to the assets needed to cover insolvencies from the previous 12 months. (See earlier IPE story: Germany's PSV levy could quadruple)

The levy is calculated based on 100% of the pension liabilities for most companies, and only those with a pensionsfonds have been granted a discount to 20% as the regulations for pensionsfonds, including asset allocation limits, offer certain guarantees against insolvency.

The BDA said it would like to see the base rate for calculations lowered to 20% for all companies within the PSV, and the percentage increased to up to 100% according to the solvency, funding and risk standards of the company which are to be evaluated by external auditors.

Gunkel was speaking today at the annual autumn meeting of the German occupational retirement federation, aba.

According to the BDA's model, plan assets as defined under IAS19 are to be used as the basis for the calculation of funding levels which would also include CTAs - a form of pension reserve which is currently not regulated.

Gunkel also argued that rules - similar to those for pensionsfonds - should be applied to the investment of these pensionfonds' plan assets, to ensure a prudent asset allocation.

However, Klaus Stiefermann, head of the aba, pointed out that it was difficult to evaluate investments when it comes to insolvencies as real estate and infrastructure might be considered prudent investments but could then be difficult for the PSV to shift if it has to take on an insolvent scheme's assets.

Further criticism for the BDA proposal came from the metal worker union IG Metall, a representative of which pointed out that it might burden small companies more as they often cannot not afford CTAs.

Gunkel stressed that the proposals were not aimed at CTAs but at all forms of pension plan assets, and argued small companies in particular, which often had an insurance-backed pension plan, would pay less into the PSV because of these security mechanisms.

"Arcandor, for example, still would have its levy calculated from 100% of its pension assets as its CTA does not fulfil our investment criteria," he pointed out.

The retail giant Arcandor became insolvent this year, burdening the PSV with €1bn.

It was later found that its CTA did not cover its pension liabilities because a lot of the assets were invested in Arcandor itself.

Gunkel also suggested that a risk-based levy would finally do away with "distortions" in the choice of pension vehicle as pensionsfonds were thought to be chosen on occasions because they carry a lower calculation base for the PSV.

 

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