The fragmented German pension landscape and the patchwork of supervisory authorities are creating conditions for losses at funds such as the pension fund for dentists VZB and the Bayerische Versorgungskammer (BVK).
VZB faces €1.1bn in losses from venture capital investments, while BVK has €690m tied to US real estate projects, on top of €163m in write-downs for 2024.
“According to publicly available information, in the case of the VZB allegations include risky investment strategies, inadequate risk management, a lack of segregation of duties, negligence on the part of auditors and supervisory authorities, and potentially also corruption and embezzlement,” said Uwe Rieken, managing director of Faros Consulting.
“The fragmentation of the German pension market facilitates cases like VZB,” he told IPE.
Germany’s occupational pension system is highly segmented. The domestic market operates 91 pension funds for professionals (Versorgungswerke), such as VZB and BVK, managing close to €300bn in assets, alongside 124 Pensionskassen with €210bn in assets, including 45 with less than €250m each, according to the association of pension funds for professionals ABV and regulator BaFin.
In addition, there are 35 Pensionsfonds (€60bn), 21 civil servant pension funds, 22 municipal and church supplementary pension funds, and companies offering direct pension promises worth €336bn, according to associations aba, BaFin, and Faros.
An extremely fragmented market requires structural reforms to function well, Rieken said, adding: “At the heart of these reforms is the unification of the oversight conducted by 16 state authorities, in favour of clear, nationwide regulations.”
Germany’s federal structure means there are more than 16 supervisory authorities for pension funds for professionals, integrated into different ministries, with oversight expertise and rules varying by state.
VZB, for example, falls under Berlin’s economic and health ministries, while BVK is supervised by Bavaria’s interior ministry.
Municipal and church supplementary funds nationwide are not under BaFin’s uniform supervision, said Gregor Asshoff, former chief investment officer of SOKA-BAU and now supervisory board member at Faros, during a webinar organised by the consultancy.
Pensionskassen and Pensionsfonds must appoint trustees to monitor assets and investments, a requirement that does not apply to professional pension funds.
“This includes, among other things, a consistent separation between operational activities and supervisory functions, as well as a horizontal separation of investment and risk responsibility,” said Alisa Ilgner, Faros’ head of investment strategy and controlling, highlighting the need for stronger governance and professionalisation across pension institutions.
