The number of Pensionskassen recording negative results from the stress test conducted by the German financial supervisory authority – BaFin – has almost doubled, from eight in 2021 to 15 in 2022, the regulator said in a statement.
Pensionskassen have suffered higher interest rates and inflation, with the gap between the current market value and the book value of their investments widening.
The sudden increase in interest rates represents a risk for Pensionskassen and a u-turn from times of lower interest rates that led in some cases to reducing members’ benefits.
High interest rates are also a relief for schemes, with new opportunities for returns in liquid investments, but BaFin is observing that those types of occupational pension schemes continue to apply a minimum rate of return to meet obligations over the long-term that is above the 10-year German government bonds (Bundesanleihe), the regulator’s executive director Frank Grund said last week at a conference organised by occupational pension association aba.
Inflation, instead, can indirectly have an impact on Pensionskassen given members’ expectations to receive a share of profits from the schemes, and BaFin will closely look at the proposals that will be made by the Pensionskassen on dividing those profits, Grund added.
The stress tests conducted by BaFin serve on one hand to check over asset allocations, and on the other as an early warning system to ultimately contribute to forward-looking investment policies, he added.
The regulator plans to start talks with Pensionskassen that have recorded a negative result in the stress test to determine the exact reasons that led to those results and, if necessary, to discuss measures, a BaFin spokesperson added.
BaFin regularly reviews the parameters of the stress tests to make sure they are appropriate to analyse the risks that Pensionskassen face, and adjust them if necessary, Grund said, adding that it has changed requirements for equity risks.
The results of the stress test show that the vast majority of German Pensionskassen under BaFin’s supervision has the strength to bear risks arising at short notice.
BaFin said that 118 out of 133 Pensionskassen took part in the stress test, and 15 were exempted as there was already evidence of the ability to bear risks due to low-risk capital investments.
Most recently, the regulator has also been warning Pensionskassen and insurance companies about the risks from investments in Spezialfonds and alternative investments, in private equity and private debt funds, climate and cyber security risks.
BaFin has 20 Pensionskassen under intense supervision, according to its latest analysis, a decrease from the previous 30, Grund said, adding that in perspective a moderate low interest rate environment can bring challenges for occupational schemes again.
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