BaFin, the German financial supervisory authority, has decided to relax rules requiring employers to restore the coverage of guarantee assets for Pensionsfonds.
The decision was taken in March in light of the coronavirus crisis, which has resulted in operational challenges for the companies concerned, according to a spokesman for BaFin.
Under the new scheme, BaFin allows employers to submit a plan to restore the coverage of up to 10% provided by guarantee assets until 1 October at the latest, and not within three months from the start of the underfunding period.
Initial payments to restock the cover of assets can be made in 2021 instead of this year. BaFin, in this particular case, refers only to Pensionsfonds, which in Germany fall under the EU supervisory directive IORP II.
The authority also addresses Pensionskassen by waiving objections to a temporary passive excess of the proportion of real estate assets held through investments funds mentioned in the sections 3 and 5 of the Anlageverordnung (AnIV) legislation.
Investment funds will no longer be able to make new real estate investments for as long as the proportion is exceeded, in order to ensure compliance with the proportion of real estate held and safeguard the stability of the financial market.
The regulator continues to closely monitor the situation as it is not entirely clear how long the crisis will last.
For this reason, BaFin will decide at the appropriate point in time whether to continue to enforce the measures or not, in an effort to provide operational relief to companies, the spokesman said.
The new approach to tackle the challenges posed by the crisis has sparked positive responses.
“Aba welcomes and support BaFin’s approach,” the managing director of the German occupational pensions association, Klaus Stiefermann, told IPE.
“In the current crisis situation, a short-term oriented compliance with prudential regulations that would force an outflow of liquidity from sponsoring companies to pensions funds, would not be in the interest of the beneficiaries or the sponsoring companies,” he added.
The Institute of Pension Actuaries (IVS), a branch of the German Association of Actuaries (DAV), also supports BaFin’s decision to accept a temporary underfunding of pensionsfonds, adding that the authority “made it clear to the IVS that the sponsoring companies will only be required to make additional capital payments from 2021, even if there is an underfunding of more than 10%,” the chief executive officer of IVS, Friedemann Lucius, said.
For the institute, the losses in value will at least partially be recovered over time and the underfunding will decrease or disappear.
“This gives employers flexibility and time, which is extremely important during a severe macroeconomic crisis,” Friedemann said.