GERMANY - The Bayerische Versorgungskammer (BVK) has reported a 4.5% return on its assets, after restocking its pension reserves.

Although the BVK managed to generate positive returns for all of its 12 member funds in 2008, it could only do that with the help of reserves which now needed to be refilled.

“We found that in the past too little money went back to the beneficiaries in the insurance cycle as a lot was used for reserves,” explained Daniel Just, CIO at BVK.

“So we set rules to ensure there is no building up of hidden reserves just for reserves sake,” he added.

He explained this also brings anti-cyclical elements to the portfolios as equities still have to be sold at the end of the year during good times, to ensure an adequate payout to the beneficiaries while equities have to be bought during market troughes.

Just also pointed out that, unlike pension fund systems in other European countries, the system in Germany is based on having funding ratios close to 100% at all times rather than having high fluctuations.

The funding level across all BVK portfolios is 105%, but ranges from 103% to 109% over the member funds.

Lothar Panzer, chairman of the board at BVK, explained the “Versorgungswerk” has also changed the discount rate in the portfolios and the retirement age, in order to better match liabilities and assets and “gain a bit more breathing space when it comes to risk capacity”.

“In the funded Versorgungswerke, we are lowering the discount rate step-by-step from 4% to 2.5% or even 2.25% in some,” he noted.

An average discount rate is then calculated from this, and is gradually lowered over the years.

After long negotiations, the retirement age is also gradually being increased to 67 years for all member schemes.