The German trend towards outsourcing and external funding of pensions obligations seems to be “unbroken”, said Marc Braun, member of the management board at Allianz Pensionsfonds.
Pensionsfonds are playing an increasingly important role to cement this movement, he added, speaking at the Handelsblatt virtual annual conference on occupational pensions last week.
The Pensionsfonds – a vehicle that allows a company to spin-off pension obligations from its balance sheet – represents a trade-off between liquidity and risk management, Braun said.
It is essential to consider how to oursource, he added. A company can decide to outsource to a Pensionsfonds based on an insurance model, that means through the outsourcing of benefits on a guaranteed basis, and this decision is taken on a ‘best estimate’ approach, he said.
Speaking about the positive side of outsourcing to a Pensionsfonds, Braun touched on the fact that inflows of contributions are exempt from tax. The company can deduct them as expenses.
Walter Reck, chair of the board of management for IBM Deutschland Pensionskasse and Pensionsfonds, explained that the company had financed its retirement provisions to the point where it was permissible from a tax point of view.
For this reason, it decided to establish a Pensionsfonds 10 years ago. It transferred €5bn of pensions obligations from the Rückgedeckte Unterstützungskasse to the Pensionsfonds.
“We have a large regulatory freedom,” he said, adding that it can use the opportunities offered by capital markets because it can manage fluctuations well within the Pensionsfonds’ funding ratio.