VM No. 12/06 took a close look at what is happening in 2007 in the market for occupational pensions in general and with individual insurers in particular. The continuation will look at the case law in this area and say where there are still weaknesses and where the opportunities lie.
Employers face a lawsuit for detriment due to zillmerization for violations of the actual fiduciary management of employee funds. More and more recent rulings speak in favour of this, especially as deductions for statutory health and long-term care insurance have now been sanctioned by the courts and are causing company pensions to melt away (see box on the right). At the same time “the suspicion of an embezzlement stands in the area”, means the Munich lawyer Johannes Fiala specialized in company pensions and warns: “Intermediaries threaten the procedure because of instigation and assistance.” But that’s not all: “The intermediary is not protected by his pecuniary loss liability insurance if he intentionally or knowingly breaches his duties,” Fiala makes clear. This could already be the case if the conversion of remuneration is made more expensive for the employee by the interposition of a collection agency which collects additional administrative costs. Caution is advised, for example, if an alternative to transferring the occupational pension to the new employer is offered which, at EUR 2.50 per month, is almost cost-neutral – for example by the clearing office of the “Deutsche Gesellschaft für betriebliche Altersversorgung” (DGbAV). It offers to take over the entire payment processing for occupational pension contracts, especially for large groups. When employees change jobs, the DGbAV says it merges the old and new pension contracts, receives the mostly more favourable conditions of the old contracts and relieves the new employer of the collection and forwarding of contributions to the pension providers. It would therefore remain a single pension contract until the start of the occupational pension. “However, additional costs in deferred compensation may not be charged to the employees’ contributions, otherwise there is a suspicion of criminal misappropriation of employee money,” warns attorney Fiala. If so, the deferred compensation agreement would be “partially void, and thus could become a liability issue for employers and agents.”
Pension funds must reposition themselves
Simple product design and low consulting costs have upgraded direct insurance from 2005 onwards, since it is now also promoted as well as pension funds and pension funds. This has put pension funds in particular under pressure, the management consulting firm Rauser Towers Perrin has observed. Since 2002, the funds have already benefited massively from the tax incentive (in accordance with section 3 no. 63 of the German Income Tax Act (EStG)). Now they have to reposition themselves because they are not yet reaching direct insurance in terms of returns. On average, Pensionskassen achieve a current total return of around 4.15 percent, while direct insurance companies achieve 4.3 percent due to many years of even more frugal management. However, there is no noticeable difference between the top performers and direct insurance (see table on page 28 below). As Towers Perrin’s 2006 Pension Fund Study shows, the range among the 31 pension funds surveyed is between 3.5 and 5.46 percent, according to consultant Stephan Birkner. This is comparable to direct insurance. However, pension funds score above all with flexible contribution payments: the so-called “ongoing lump sum” allows the employee to decide anew each year whether and in what amount he wants to pay into his pension fund. “About 80 percent of the insurers studied offer these ongoing one-time payments,” study author Birkner knows. “There is no silver bullet for one or the other pension version,” also says Joachim Geiberger, managing director at Morgen & Morgen. The analysis at tariff level does not point to a clear winner. Reason: There are too many dependencies and individual circumstances to take into account. Investors should also pay attention to the quality of the insurer itself so as not to experience any nasty surprises later on: The company rating from Morgen & Morgen should be at least four stars (“very good”). However, it is not yet available for pension funds. According to Rauser Towers Perrin, a shake-out of the market is foreseeable, as many insurers are considering limiting themselves to direct insurance, which is very similar in many respects. In addition, Stephan Birkner expects that Pensionskassen will be under greater pressure from pension funds in the future. Starting points would be the outsourcing of existing pension obligations from companies and the probably higher benefits of pension funds in the future. “With new, genuine pension funds, there is a much more cost-effective way of outsourcing pension obligations than with the old insurance-based pension funds or U-Kassen,” says Andreas Bürse-Hanning, CEO of Aures Finanz AG & Cie. KG (Mülheim/Ruhr). Background: The 7th VAG amendment in summer 2005 for the first time created the possibility for pension funds to calculate pension benefits on a non-insurance basis, i.e. to use, for example, an actuarial interest rate of 4.0 percent, provided the employer accepts an obligation to make additional contributions. The first “non-insurance” pension plans are already on the market. For a fund selection with a capital preservation approach, 4.0 to 4.5 percent should be achievable. Bürse-Hanning cites the DWS Flex Profit and Invesco Capital Shield 90 (EUR) Funds as examples. Here, prices are hedged daily and stable returns of over five percent are possible. “If you take these funds as backing for the real pension fund calculation, the math should add up,” the broker hopes. This would be a much cheaper solution than the redemption of pension obligations at guaranteed values, which has now become even more expensive due to the lowering of the guaranteed interest rate to 2.25 percent. “The savings with real pension funds can be as much as 20 percent,” estimates Bürse-Hanning. There is also some movement on other fronts with regard to occupational pensions. For example, a collective agreement on deferred compensation for state employees recently came into force. Only the Federal and State Government Employees’ Retirement Fund (Versorgungsanstalt des Bundes und der Länder – VBL) is approved as the pension provider. The municipalities had already allowed only public-law insurers and supplementary pension funds to participate in their collective agreement, thus creating an oligopoly that is not only rejected by most insurers but also violates public procurement law. There’s bound to be more trouble. There is also trouble ahead in other areas: a decision is expected in 2007 as to whether payments made under the deferred compensation scheme will be exempt from social security contributions beyond 2008. If the SV obligation were to come into force, employees would find themselves in an expensive and ineffective pension scheme that they had taken out under completely different circumstances. Secretary of State for Social Affairs Heinrich Tiemann already sent a signal at the beginning of 2006: “My political opinion is that the current regulation will expire on 31 December 2008.” The consequences would be counterproductive for occupational pensions and old-age provision as a whole (see box above left). The solution to the dilemma is relatively simple: viewed through the lens of society as a whole, we need more capital cover – as a supplement in all social security funds. And then consistency is needed, not to withdraw funding once it has been started halfway. In addition, the regulatory principle should apply: What is not subject to taxes should not be subject to social security contributions.
(Versicherungsmagazin 1/2007, 26)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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