The German government’s final draft of the new insurance supervision law (VAG) will impose elements of Solvency II on the country’s Pensionskassen and Pensionsfonds, despite objections by industry and employer bodies.
The VAG had to be amended to fulfil requirements under Solvency II but occupational pension groups lamented that the insurance framework was, in part, being transferred onto schemes.
The German pension fund association aba told IPE it had not yet had the chance to check the new draft in detail but at first glance it seemed that “unfortunately” a lot of its requests for amendments, made after the first draft was published in late July, went unheeded.
One of the main demands of various representatives from the occupational pensions sector had been a completely independent set of rules on the supervision of IORPs – a demand which has not been met.
In particular, the VAG’s application of paragraph 124, concerning investment principles, to IORPs had been criticised and remains unchanged in the final 360-page draft which will now be presented to parliament.
It introduces the principle of “entrepreneurial prudence” (unternehmerische Vorsicht) for investments which according to aba was superfluous as IORPs already operated under the prudent person principle.
Further, aba noted that IORPs were no enterprises and did not aim to return a profit.
One major criticism voiced by the association was a limit on “non-listed” vehicles, which the law said should be “kept to a cautious level”.
In its comment on the original draft the aba had cautioned that this would also apply to most real estate holdings and a cap on those would prevent IORPs from accessing illiquidity premiums in future.
Similarly, the German actuarial society (DAV) as well as the federal employer association (BDA) warned not to link paragraph 124 to IORPs as it introduced stricter than necessary regulatory requirements regarding supervision and in parts was not consistent with other regulations applying to this sector.
The aba pointed out the limitations under the new legal draft were not in line with the “prudent person principle” which should allow IORPs the freedom to make decisions.
One point welcomed by the occupational pension sector were changes to payout structure of the Pensions-Sicherungs-Verein (PSV), the industry’s buffer fund for insolvencies.
According to the final draft, the PSV would also be exempt from any new Solvency II-based capital requirements placed on other insurers.
In addition, it will in future be more easy to allow partial payments of the levies in years when the number of insolvencies is exceptionally high.