by Dr. Johannes Fiala, Munich “Today I bake, tomorrow I brew, and the day after tomorrow…” (Grimm’s fairy tale)
Insecure pension “The pension is secure” proclaims the politicians. This was followed by an appeal to the citizens to build up a second pillar for old age, the occupational pension scheme (bAV) – in particular through deferred compensation. This form of saving also means a noticeable reduction in consumption for the citizen. Clever sellers, especially of insurance products, seized the opportunity and employers were sold masses of contracts worth billions which, due to high acquisition costs in the first few years, often have no surrender value at all. Acquisition and administrative costs were financed from staff salaries. What begins with a small salary conversion with, for example, a missing 2000 euros, ends in old age with a deficit of up to more than 10 times this amount. With a little “bad luck” the employer is liable for this difference. Insurers calculate with uninformed customers In the magazine Versicherungswirtschaft, a departmental director of life insurance – himself active in the corporate insurance business – puts it in a nutshell: employers will rarely sue for misadvice because “the facts are sometimes so complicated that even tax and pension consultants will hardly discover them.” Insurers are protected by “intransparency as well as the regularly long periods of time until the liability facts are discovered and clarified in court… – against this background, misadvice is fundamentally difficult to prove.” And damage assessment is “not easy and dependent on future developments.” Secure employer liability – the pension trap The core problem economically is that almost every employer was not informed about the acquisition costs. For employees with an average length of service with the company, there is usually more “net” money left over if they had paid tax on the money without the occupational pension model and placed it in their savings account. Support from actuaries as experts The much vaunted “independent” advice turns out to be a liability trap for employers in over 95% of cases on closer examination. High administration and acquisition costs later burden the balance sheet, even leading to insolvency. As a rule, only an independent actuary will be able to show the employer which economic liability risks exist – the complex facts can be made transparent in this way and an equality of arms can be established with the product providers and intermediaries who are only supposedly protected by lack of transparency. Money-back from the sponsors of company pension schemes The insurance intermediary usually takes personal trust – he cannot hide behind an intermediary GmbH either: he is personally liable. But the insurer or a provident fund is also liable to the employer. A need for action arises above all because the employer must be liable to his employees for 30 years (limitation period) – but incidentally after ten years at the latest the employer’s recourse against the intermediary may be time-barred. However, actuaries – who are familiar with the calculation of such long-running contracts with different benefit components – can still predict the developing loss in good time. It is not uncommon for an actuary’s opinion and a lawyer’s letter to be sufficient to obtain complete reversal. It is reassuring for the employer that the costs of the actuary or expert (without whom transparency and damage assessment are usually not possible) and the remuneration of the lawyer must then also be borne by the occupational pension provider: The employer is also liable for its intermediaries, as they are considered to be its vicarious agents. Success through competence Daily practice shows that an actuarial expert opinion and a lawyer’s letter are usually sufficient for the employer to be compensated for damages. There are already numerous judgements – hardly any insurer wants to risk another one. In the end, the insurer is confronted with a transparency that it does not want. As long as the number of lawsuits – as the industry notes – remains within limits, it therefore prefers to pay out of court for business reasons and to avoid new relevant judgments. Employers have quite good chances above all because the suspicion of fraud by insurers and intermediaries in the objective-criminal sense regularly arises with the employer as soon as he has been informed by actuary and lawyer about the existential economic consequences of his company pension models, which are often advertised as liability-proof. If intermediaries have to be told that their misadvice is unlikely to lead to liability suits because they are already protected by the insurer through non-transparency with regard to the assessment of damage, one can guess the economic accumulation risk behind these contracts. For the product provider and intermediary, the difference between a theoretical risk and a risk that materialises then lies only in the transparency to be created.
Law Office Dr. Johannes Fiala, MBA Financial Services (Univ. Wales), MM (Univ.), Bankkaufmann (IHK), Certified Financial and Investment Advisor (A.F.A.), Lecturer for Civil Law and Insurance Law (Univ. of Cooperative Education), De-la-Paz-Straße 37, D-80639 Munich, Tel.: 089/179090-0, Fax: 089/179090-70, info@fiala.de, fiala4instalive.instawp.xyz.
(Dt. Vertriebs- und Verkaufsanzeiger 224/2007, p.10)
Courtesy of www.guta.de.