German occupational pension vehicles (Pensionskassen) can take advantage of the current phase of consolidation, outsourcing of operational activities and the transfer of existing contracts to larger pension funds to increase efficiency and stability, according to Henning Tewes, principal at Mercer Deutschland.
Occupational pension schemes in Germany are opting to merge by outsourcing important operational activities.
Tewes gave the recent example of the pension scheme for the Red Cross in Germany (Pensionskasse vom Deutschen Roten Kreuz VVaG) which outsourced its business operations to Verka VK Kirchliche Vorsorge VVaG, the provident fund responsible for investments and pension management for regional evangelical churches.
“This measure aims to realise synergies and ensure effective business operations in an increasingly regulated and digitalised environment,” he added.
Pensionskassen and Pensionsfonds, another vehicle to offer occupational pensions in Germany, are increasingly outsourcing functions as they find it hard to hire due to a lack of skilled workers.
The financial supervisory authority BaFin has encouraged small Pensionskassen in the past few years to transfer their holdings to larger pension funds to minimise risk and increase efficiency.
As a result, the number of Pensionskassen has decreased from 135 in 2019 to 124 in 2023, while the amount of assets under management increased from €178bn to €206bn over the same period of time, according to BaFin.
The solvency and financial situation of Pensionskassen has improved in the past year on the back of higher returns and rising interest rates. According to BaFin, the number of Pensionskassen under intensified supervision fell from 40 in 2020 to less than 20 in 2023.
This is a clear sign that the schemes improved their risk-bearing capacity but there are still major differences between individual pension funds, particularly with regard to the ability to cover obligations, Tewes said.
Pensionskassen are well positioned to navigate the current market on the back of increasing funding and solvency capital requirements, and growth in terms of assets under management which have strengthened their financial condition, he added.
Future challenges could include their ability to adapt to new regulatory frameworks and the changing demand from members.
BaFin said occupational pension schemes might struggle to fully meet their obligations in the coming years as their assets are still largely invested in long-term interest-bearing securities that suffered from a prolonged phase of low interest rates.
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