The German financial supervisory authority, BaFin, is considering a review of the investment circular applying to Pensionskassen, Pensionsfonds and small insurance companies – a step that would facilitate the implementation of Germany’s second pillar pension system reform as proposed by the government, according to occupational pension funds association Aba.
“In order to implement in practice the goal of ‘higher returns’ in the [governing] coalition agreement, a review of BaFin’s capital investment circular and BaFin’s stress test for Pensionkassen is necessary,” said Jürgen Rings, chief executive officer of the Pensionskasse der Mitarbeiter der Hoechst-Gruppe VVaG/Höchster Pensionskasse VVaG, and head of aba’s expert group on Pensionskassen.
The goals set in the governing coalition agreement signed by the Greens, the Social Democrats (SPD) and the Liberal Party (FDP), allowing investments to boost returns in second-pillar pensions schemes, were transposed into the bill drafted to reform the second pillar (the Second Company Pension Strengthening Act or Betriebsrentenstärkungsgesetz II), which contains specific and “important changes” for Pensionskassen, according to aba.
The new rules, if passed by Parliament, would change the definition of Pensionskassen, modify the investment regulations with the aim to boost returns on investments, adding a separate quota to allocate assets to infrastructure, and tolerate underfunding for a limited period of time to exploit opportunities offered by the new investment regulations, according to the draft bill.
The new rules on underfunding mean that Pensionskasssen do not have to cover obligations with the investments of the so called security assets at book value.
They extend the European Union Directive 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORPs), already valid for Pensionsfonds, to Pensionskassen, the government said.
As part of risk management, Pensionfonds can experience underfunding, with the employers and the scheme agreeing on a plan to restore full funding, which requires the approval by the supervisory authority.
That is where Bafin’s investment circular and its review come into play. The circular also tells Pensionskassen and insurance companies to conduct stress tests on a quarterly basis as part of their investment risk management.
“The new investment options [for Pensionskassen] can only be used once security asset plans submitted to BaFin have been approved. We, therefore, welcome the fact that BaFin is aware of this responsibility and is already considering the revision of the capital investment circular,” Rings said.
He added: “We need practical regulations from BaFin for implementation – as soon as the legal changes [through the reform] are made.”
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