The reform of the Betriebsrentengesetz, the law that protects German Pensionskassen in case of an employer’s bankruptcy, can have an impact on the appeal of occupational pensions, according to consultants.
Under the new rule, employers are required to contribute to the equalisation fund set up by the mutual insurance association for German occupational pension schemes, the Pensions-Sicherungs-Verein VVaG (PSV).
Contribution are calculated in 9‰ (promille), which takes into account the rate for 2021, set at 3‰ (promille), and an additional contribution of 1.5‰ (promille) for the years 2022-2025.
“The employer has to pay the contribution to the PSV, but the PSV will step in only if the Pensionskassen cannot pay pensions in full and the employer is insolvent,” Kai Lehmberg, consultant for policy matters at the Hannoversche Kassen, told IPE.
Employers will reconsider how and if to continue to provide occupational pensions, he said.
“In this case we will have to see what kind of consequences the reform will have on occupational pensions.”
BaFin, the Federal Financial Supervisory Authority, has 36 Pensionskassen under intensive scrutiny, according to a reply from the German government to a parliamentary inquiry, and has already approved applications to cut pension benefits filed by seven funds.
With the reform, the legislator decided to widen the scope of the PSV for regulated Pensionskassen precisely given the difficult situation that retirement funds navigate, said Michael Ries, managing partner at Ries Corporate Solutions.
But, he added, the reduction of benefits by Pensionskassen will lead to problems for sponsor companies, which will have later on to compensate for reductions and pay contributions to the PSV.
“This is catastrophic for the Pensionskassen, and will be fatal for the acceptance and the appeal of occupational pensions,” Ries said.
“This is catastrophic for the Pensionskassen, and will be fatal for the acceptance and the appeal of occupational pensions”
Michael Ries, managing partner at Ries Corporate Solutions
Employers that run occupational pensions through regulated Pensionskassen will have to pay contributions to PSV on top of the normal contributions for old-age provisions.
“The legislator wants to have the highest level of security, and it is the only way that makes sense because the alternative is the liability of state, and that is not a viable realistic alternative,” Lehmberg said.
He added that, however, further contributions may lead employers, in particular small firms, to consider whether to provide occupational pensions through Pensionskassen.
Hannoversche Kassen has adjusted the interest rate for future benefits because it cannot always guarantee to generate 3% return, and make promises that won’t be able to keep, Lehmberg said.
“We have the possibility to react flexibly and to generate for the future what we have promised,” he said, but employers pay the same amount of contributions for Pensionskassen that have taken, or have not taken risks.
“It is unfair that all regulated Pensionskassen are treated the same way even though some are financially well in shape and others not so financially well equipped. The reform does not close this gap and all regulated Pensionskasse are disadvantaged,” he said.
The reform extends the protection provided by PSV to company pensions organised through Pensionskassen, excluding public sector schemes and company pensions organised through funds that already fall under the Protektor Lebensversicherungs, the guarantee scheme for German life insurers.
Hannoversche Kassen believes the Protektor Lebensversicherungs is not as well equipped as the PSV.
“If the employer manages the occupational pension through a Direktversicherung (direct insurer) and the insurer struggles financially, then the protektor steps in. The Protektor does not have to pay full pensions in special cases, and the difference has to be paid by the employer. The protector system is not always beneficial,” Lehmberg said.
Through the reform, the legislator has changed the insurers’ contract formula, or versicherungsvertragliche Lösung, which gave employers the possibility to limit the number of claims from an employee that decided to step out early from an occupational pension organized through a direct insurer.
“We welcome this part of the reform because it gives planning security, and there will not be litigation between the parties,” Lehmberg said.
For Ries, instead, the employer remains liable to compensate the Pensionskasse’s reductions of benefits.
“The legislator wants to reinforce the cover of the beneficiaries but impacts the reputation, the appeal of the occupational pension and will reach the opposite result of that of the Betriebsrentenstärkungsgesetz. It will be a catastrophe,” he said.