The persistent low interest rate environment could result in further Pensionsakssen in Germany having to cut pension benefits in the next few years if sponsoring companies decide not to grant financial funding.
In some cases, employers are not ready to inject funds into Pensionskassen in distress to avoid pension cuts for their employees, and these cases “are problematic,” the executive director at the German Financial Supervisory Authority BaFin said in an interview with the Deutsche Presse-Agentur.
Therefore it “cannot be ruled out” that there will be instances where Pensionskassen decide to further cut pension benefits in the years ahead, Grund explained, adding that, however, he does not expect “larger cases” to surface.
Sponsoring companies are willing to inject financing, instead, for “quite a number” of Pensionskassen to avoid occupational pension cuts at the cost of their employees, Grund added.
According to the executive director, around 90% of pension obligations of Pensionskassen are fully protected by the mutual insurance association for German occupational pension schemes, the Pensions-Sicherungs-Verein VVaG (PSVaG), from the beginning of this year.
The PSVaG steps in if a Pensionskasse cuts its pensions benefits and the employer cannot finance them, for example in the case of bankruptcy.
For this year the PSVaG has set the contribution rate for members at 0.6‰ (promille), but the lifeboat scheme believes that the conditions leading to an extraordinarily low contribution rate last year will not occur again in 2022, and the contribution rate will be significantly higher, it said in a statement.
The Pensionskassen for the catholic aid organisation Caritas and its affiliate Kölner have had to cut benefits in the past and then liquidated their pension businesses following a restructuring process.
BaFin revoked the schemes’ licences to operate after they were unable to meet the minimum capital requirement. The regulator judged the financing plan submitted by the Pensionskassen to cover the underfunding “inadequate”, it said last year explaining the reason for revoking the licences.
Pensionskassen offer life-long pensions and suffer particularly from a long phase of low interest rates, Grund said at the Handelsblatt occupational pension forum last October.
If interest rates remain at the current level, and “that’s what I assume”, he said, Pensionskassen can meet the obligations only with “external support”, and if companies cannot agree on the support “it can happen that benefits are cut,” he added.
Last year the Bundestag, the German parliament, decided to ease the bailout of Pensionkassen, allowing from this year the possibility for individual companies to financially support Pensionskassen, therefore avoid seeking consensus with other sponsoring companies to restructure the assets.
BaFin has around 40 Pensionskassen under intensive supervision and a “single digit number” of Pensionskassen are under a “special focus”, among those the three Pensionskassen that have already cut their benefits, Grund said.
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