German pension fund Babcock Pensionskasse has been ordered into wind-down after years of heavy investment losses and a failure to rebuild its solvency position.
A spokesperson told IPE the fund’s financial deterioration traces back to the prolonged turmoil in European real estate markets throughout the 2020s.
Rising interest rates, the war in Ukraine, volatile markets and inflation “put the pension fund in front of radical changes difficult to handle”, the spokesperson said.
Rapid rate hikes by the European Central Bank triggered sharp valuation losses across property assets and contributed to a “historically high number of bankruptcies”, further weakening the fund’s results.
Several investments had to be written down, reserves were exhausted, and the fund used a large portion of its equity to plug annual deficits.
“This led to a shortfall in the solvency capital requirement,” the spokesperson noted.
With no realistic plan to restore minimum capital and no viable route out of underfunding, the financial supervisor BaFin has revoked Babcock Pensionskasse’s licence to conduct business, effective December.
The fund now joins the pension funds of Caritas and its affiliate Kölner, which were forced into liquidation after years of pressure from low interest rates.
A troubled past
Babcock Pensionskasse became a multi-employer scheme following the 2002 insolvency of its sponsoring employer, Babcock Borsig. During the 2008–09 financial crisis, Swiss Life withdrew from an agreement to take over the fund’s liabilities, after which Mercer Deutschland administered the scheme until 2019.
Over this period, the fund reduced its guaranteed interest rate on pension promises from 3.50% to 3.25%, using annual surpluses originally earmarked for solvency capital.
It also strengthened equity capital and actuarial reserves. To deliver the 3.25% target return, the fund increased exposure to higher-risk alternative assets.
“This was possible because sufficient risk capital was available in the form of equity and reserves,” the spokesperson explained.
Initially, the strategy enabled the fund to meet its guaranteed rates despite the low-yield environment. The pandemic dealt the real blow, however, followed by the ensuing property market shock, leaving the fund unable to recover.
BaFin’s decision forces a pivot away from higher-risk investments and towards prioritising risk tolerance. Restructuring remains the shared aim of the fund and the supervisor to stabilise finances and maintain long-term benefit payments, but this will require cuts.
“The amount of the reduction is currently being calculated, will not be finalised before spring 2026, and depends on the results of the annual financial statements, which are currently being prepared,” the spokesperson said.
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