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IPE special report May 2018

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German province pressured to tackle 'pension lie'

Conservative politicians in the German regional parliament of Rheinland-Pfalz called the province’s €5bn Pensionsfonds a “pension lie”.

The government has been accused of using a reserve fund for civil servants to buy more local government debt.

In a heated debate in Mainz on Wednesday, MPs discussed the ramifications of a recent verdict by the province’s constitutional court that these investments were “unconstitutional”.

Since 2006, money going into the Pensionsfonds from the budget had been invested almost solely in regional government debt, the court found. However, within the public accounts these purchases of local debt are qualified as investments rather than government debt.

That meant the re-labeling of assets was used to ensure spending stayed below the credit threshold for the local government.

According to the ruling, the local government now either has to dissolve the fund or change it to fit within the constitutional framework.

In the parliamentary debate following the verdict, the conservative opposition party in Rheinland-Pfalz, CDU, called the fund a “pension lie” told by the left-wing government SPD.

“It is not a retirement provision as suggested”, said CDU MP Julia Klöckner. “It is merely a calculation trick to lower the debt level.”

In response, SPD MP Alexander Schweitzer pointed out the provincial government had achieved the first budget surplus since 1969: “Our response to the increasing pension liabilities is a responsible budget policy.”

Doris Ahnen, a member of the Rheinland-Pfalz government, promised the authorities will act on the court’s decision.

“We will amend the labeling of the debt investments by the Pensionsfonds immediately,” she told MPs, “but we will take time to carefully prepare further changes to the legal framework of the fund.”

Ahnen also promised a legal draft “before the summer”.

Initially the fund had been set up with the intention of fully financing the local government’s pension liabilities. This was changed in 2016 when the fund was reduced to a mere reserve vehicle into which €70m annually had to be paid by the government.

This annual sum is also part of the double budget for 2017/18, for which the government in Rheinland-Pfalz is currently trying to get a majority in the local parliament.

Within the Pensionsfonds but in a separate portfolio, individual savings for civil servants are collected – but these were not contested by the judges. 

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