The Pensions-Sicherungs-Verein VVaG (PSVaG), the mutual insurance association for German occupational pension schemes, has been discussing with Pensionskassen what a smooth transition to a new protection regime would look like, board member Hans Melchiors told a virtual audience during the Handelsblatt annual conference on occupational pensions this week.
He added that the association has been negotiating “intensively with the Pensionskassen to simplify the process”.
Under the new rules, approved by the German parliament in May, the PSVaG is extending its protection to company pensions organised through Pensionskassen if an employer is insolvent.
The Pensionskassen will start to contribute to the PSVaG’s equalisation fund as soon as next year, even though the new protection applies only from 2022, Melchiors explained.
“At the moment we have €3.1bn in the equalization fund, [resources] of course intended to be used in bad times,” he said, adding that the Pensionskassen benefit from the fund and it is fair that they pay their share.
The current rules are “very good and balanced,” Melchiors added. He is convinced the PSVaG will be able to integrate the Pensionskassen in the new system.
Christian Röhle, head of pension fund management at the Hoechst-Gruppe Pensionskasse, said the framework in place for occupational pensions has to be adjusted to new conditions, namely the current low interest rate environment.
The new insolvency protection carries an obligation primarily to the employer, he said, adding that one important point for Hoechst-Gruppe is how to support the employer. Assets in the hands of Pensionskassen can be transferred to the employer or to the PSVaG in case of insolvency, Röhle said.
An efficient process for transferring assets, however, needs to be established, he added.
Pensionsfonds for example have agreed with the PSVaG on a so-called simplified procedure. This can also be an option for Pensionskassen in the future, Röhle said.
Keeping occupational pensions up to date
The Hoechst-Gruppe has seen an increasing interest in the so-called bAV Riester, occupational pensions and Riester-Rente, in the last two or three years, driven by the possibility to choose a Riester option digitally and improved framework conditions.
According to Melchiors, the establishment of five main ways* to organize occupational pensions in Germany is the result of an increased appettite by companies to be able to have hoice among certain types of retirement schemes.
Melchiors stressed the importance of such retirement ways to be kept up to date so that the companies ”can use them actively” as this would contribute to supporting the social system around occupational pension schemes, currently a “remarkably difficult” exercise, he said.
As an example, Melchiors pointed at the pure defined contribution, or reine Beitragszusage, that raises “many questions” but it could represent a sixth way to run occupational pensions.
The different options that already exist to organize occupational pensions schemes would have to be kept intact.
“We would see that in Germany the acceptance [level] of occupational pensions is very high for companies,” he said, adding that ”a large part of the occupational pensions is still financed by the employers.”
* Main types of German occupational pension schemes
- Direktzusage - a direct pension promise by the employer to directly pay occupational pension benefits to the employee out of future profits (unfunded system);
- Pensionskassen (staff pension fund) – pension payments are usually made through a special life insurance company that operates the occupational pension for one or more employers;
- Direktversicherung (direct insurance) – the employer signs a life insurance policy on the life of employees and promises the employee (or the employee’s survivors) payment of the benefits due under the insurance contract;
- Unterstützungskasse (support fund) – the employer usually has the freedom to choose how to provide its contributions to the support fund;
- Pensionsfonds (pension fund) – provides the benefit to the pensioner and operates in a similar way to the Pensionskasse, however, the Pensionsfond has reduced regulatory limits with respect to the investment of the funding capital.
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