– Why is it that no one is harmed? –
Reduction of pensions by pension funds and pension institutions
Expectations regarding the level of benefits at pension institutions (PA) and pension funds (PK) have been steadily and foreseeably clouding over for many years. Section 314 of the Insurance Supervision Act (VAG) allows the Financial Supervision Authority (BaFin) to issue a payment ban or order a reduction in benefits from the PF. However, this has not yet happened (BT-Drucksache 19/1216, p.32) – only new business was initially prohibited. Alternatively, BaFin could apply for insolvency in the event of imminent insolvency; if and insofar as its supervisory powers are sufficient.
In fact, since 2007 there has been a tendency for an increasing number of PFs (including those that call themselves Versorgungskasse, Alterskasse or Versorgungsanstalt), which, for example, have successfully had the reduction of the pension factors for future contributions approved by BaFin in accordance with their statutes. This is a comparatively mild form of benefit reduction, although it is clearly noticeable. Particularly since pension increases from surpluses were previously already legally reduced without any supervisory approval, so that many current pensions have hardly been increased since then, and new pensions are limited to the minimum guarantee.
Reduction of benefits by the state supervisory authority for Pensionsanstalt
The ordering of a reduction in benefits, for example after an audit by the Court of Audit, decided by e.g. the Ministry of Economics as supervisory authority, serves to avoid insolvency; § 81 II 1, I 4 VAG. This applies accordingly – as supervision of maladministration – if the PA is a public-law legal entity and therefore insolvent. Then contributions must be increased, or benefits reduced, or both; in order to avoid state guarantor liability (VG München, judgement of 11.05.2009, Az. M 3 K 07.5934, Rz.49).
Employers’ liability to employees in the event of pension reductions
The Federal Labour Court (BAG, ruling of 19 June 2012, file no. 3 AZR 408/10) decided that in the event of a reduction in the benefits of a PF in accordance with the statutes, the employer must compensate the employee for the difference to the corresponding extent, § 1 I 3 of the Company Pension Act (BetrAVG). The employer cannot contractually exempt himself from this obligation to pay in the case of dynamic referral.
This is a bitter pill to swallow, for example, for those tax consultants who had concluded a company pension scheme for their employees with a “Pensionskasse für Steuerberater VVaG” (pension fund for tax consultants VVaG) – access to their own pension scheme is usually not available to normal office employees.
Duty of care to yourself?
In principle, the so-called “responsible actuary” (VA) could well be liable with the insurer or a PF – the usual indication that the supervisory authority has not objected to this so far does not help him. However, the proof of damage will be problematic.
If the pension candidate had behaved correctly (in terms of calculation), he would have had to pay even more contributions for the promised pension for many years, or he would have been promised a lower pension for the same contribution, to which the pension is ultimately only reduced. If he now has to pay more or gets less, often not even to the extent that it should have been correctly for a long time, he has no damage at all. He only loses the unjustified advantage resulting from miscalculation. It is only in the case of the employee that the employer must nevertheless stand up for what he has unfortunately promised too highly.
In comments on “damages”, there is a clarifying reference to the fact that the damage is not calculated under the premise that the advice or conduct was correct. The insured therefore do not suffer any damage in the legal sense if they do not receive what is promised too highly. Only the employees have a claim under a guarantee from their employer – and the employer thus suffers a loss. Because he would not have promised such high pensions if he had known about the miscalculation.
The PF is not in the role of an asset manager who would be prevented by contractual investment guidelines from making speculative (re)investments – even if the return is negative in the end.
The money’s not completely gone. It’s just not enough for what was once mistakenly promised too much. Which is why there is now only what there should have been in the first place.
Obligation of the responsible actuary to pay contributions to pension funds and insurance companies?
The actuary could rather be held liable for the fact that the decision to increase contributions or reduce benefits was made too late or too little – a redistribution from “young to old”; because pension payments and entitlements would always have to be reduced equally (BVerwG, judgement of 21.09.2005, Az. 6 C 3.05).
It would also be questionable whether a responsible actuary can exculpate himself by referring to the lack of objections by the auditor’s (WP) certificate and BaFin? Legal requirements (e.g. “Solvency II and IFRS 17”) make it “difficult to impossible” for an expert third party (e.g. securities dealer) to verify the (financial) reserves formed by offsetting. This makes it all the more astonishing when managers of PF or pension funds believe they can manage without an actuary for supervision and control: In the event of a claim, an organizational deficiency with manager liability.
The fact that someone now has to limit himself or herself surprisingly in old age is just not a damage. Possibly he can say that if he had behaved correctly he would have paid into the statutory pension insurance voluntarily – but then he would have even less assets at present, so he has an advantage due to the mistake of “his pension fund” or whoever else, due to the savings in contributions, which would have to be offset by way of benefit equalisation until in 20 years after the start of the pension the (statutory) pension would have been worthwhile as an alternative.
Risk-free market interest rate – less the costs of financial intermediaries
In the long run, you can set your expectations on the capital market. But that’s not what you want to hear, you want something more positive from someone you are able to believe in. Therefore one creates an organization and pays suitable people to lie in a credible way, as long as they do not even fool themselves and believe in it. Many people prefer to receive empty promises than no promises at all.
Even today, most of the self-employed affected do not believe that the pension cuts are even necessary. Or think that it must have been particularly blatant mistakes and fault that probably destroyed the capital. Some people think that one should have invested more in equities, others think they can see from the write-downs that this was precisely the mistake. To this end, unsuspecting people calculate that more contributions are collected than pensions are paid out and that the reserves are constantly increased for this purpose, without any noticeable withdrawal.
The European Central Bank is certainly innocent – rather false pride in black zeros
The declining returns on the capital market follow the fact that far too much money has been desperately and globally searching for investment opportunities for decades. The transformation there consisted, among other things, on the one hand, in transforming companies into net savers of the national economy; and on the other hand, in limiting new government debt through so-called European treaties, balanced budgets and lower military spending.
In India, the doctor asked what the treated patients were waiting for in front of the practice: to be paid for their visit! Investors have to ask themselves how they come to believe that they should receive interest on their money. After all, you don’t get money for superfluous household waste, you have to pay for it.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published in ExperteReport 10/2019, pages 74-75)
and
www.experten.de (published on 24.10.2019)
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About the author
Dr. Johannes FialaPhD, MBA, MM
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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