The forecasts for benefits of numerous private pension insurance policies have more than halved since they were taken out, which has only been the case since 1990, due to the sharp fall in interest rates in the meantime. This is no different in occupational pension schemes (bAV), which are largely organised via life insurance policies.
However, if this also reduces the reinsurance benefits for a promised occupational pension, the employer is confronted with the issue of default liability. This affects not only employers for whom no significant reinsurance has been saved for commitments, but above all cases in which the expected performance of the reinsurance has failed to materialise. Employers who have done the math in the meantime fear that they will have to inject capital in the amount of the previous payments to compensate for the financing gaps.
The legislator has placed Pensionskassen and direct insurance with irrevocable subscription rights under the supervision of the Federal Financial Supervisory Authority (Bafin) and has deemed this to be sufficiently safe.
Consequence: The employer avoids the obligation to pay contributions to the Pension Security Association (PSV) with the consequence that company pensioners would also not receive any benefits from the PSV in the event of the employer’s insolvency.
This is different in the case of claims from direct commitments and U-Kassen: the PSV takes over the pension payment if the company is no longer solvent. The PSV would pay a monthly pension of up to 8,295 euros in 2014 (East Germany: 7,035 euros).
The statistical insolvency risk of employers is on average around one percent per year. In addition, voluntary liquidations are many times higher. If insolvency occurs, the employees benefiting from the PSV will no longer participate in future surpluses, so that the expected supplementary occupational pension can be more than halved.
In the case of managing partners, the PSV does not make any payments at all. In the case of top managers, the monthly benefit of the PSV is limited to the maximum pensions mentioned, so that this group of people usually needs significantly higher cover.
What can a savvy consultant do? For example, expand the mental framework for hedging! No employer is obliged to commit to the occupational pension scheme in accordance with the German Occupational Pensions Act (BetrAVG). Both the employer’s default liability and the PSV contribution obligation can be legally optimised.
For example, the occupational pension scheme can be organised via a foundation which the employer can also have set up for his own provision. If the foundation is solely liable, the commitment does not even fall under the Occupational Pensions Act. In the case of such pension plans, benefits can be linked to company loyalty, for example until the start of retirement.
n contrast, commitments under the German Occupational Pensions Act (BetrAVG) have so far provided for vesting after five years. It is also conceivable that employees invest with their employer via their own foundation.
The employer can also join an existing foundation or have already smaller pension assets managed by a trust foundation. In asset management, intermediaries can participate on an ongoing basis as fee-based advisors or through commissions, including transparent legal handling of the usual kick-backs. The trend is towards fee-based advisor models in which the kick-backs have to be disclosed and delivered – for the benefit of the foundation and its beneficiaries.
An alternative to the foundation would be an association or a non-profit limited liability company – both legal forms can theoretically be established with a capital of just one euro. Employers are generally unaware of the risk that direct insurance companies and Pensionskassen are allowed to reduce their benefits under certain conditions – also and with the help of Bafin. With a foundation, the problem would not arise for the employer at all. However, he would always have to have it monitored whether the investments also cover the pension claims. Whether asset managers can do this better than insurers is the question.
by Dr. Johannes Fiala
by courtesy of
