– Misrepresentation of risk and return by bankers, underwriters and training managers -.
Back payment: Pensions from life insurance policies must be increased retroactively All it takes is a short letter of request to one’s own insurance company, and the pension is increased retroactively. The Federal Constitutional Court (1 BvR 80/95) has stipulated to the legislator that insurance customers must participate in the hidden reserves.
The legislator implemented this through § 153 of the German Insurance Contract Act (VVG) on 01.01.2008. The German Federal Financial Supervisory Authority (BaFin) recently expressly pointed out to insurers that policyholders must also participate in the valuation reserves in the case of current private pensions. Even if the professional association of actuaries had decided otherwise at the end of last year – private pensioners can insist on re-invoicing and additional payment from the insurer.
Constitutional court demands participation of insured persons in hidden reserves
In the BVerfG ruling of 26 July 2005 (1 BvR 80/95), the Federal Constitutional Court obliged the legislator to provide for an adequate participation of policyholders also in the valuation reserves – the so-called hidden reserves. Many policyholders were therefore already able to look forward to higher surrender values and maturity benefits from the beginning of 2008. In particular, however, this was often forgotten in the case of contracts expiring exactly on 01.01.2008 – the insured then only receive the pro rata hidden reserves – often several thousand euros in addition – after making a complaint.
Insurers have incorrectly implemented requirements of the Constitutional Court for pensioners Empty, however, so far the pensioners with already current private pensions went out. The reason for this is a misleading formulation by the legislator in § 153 of the new Insurance Contract Act (VVG): “§ 153 – Surplus sharing
(1). The policyholder is entitled to a participation in the surplus and in the valuation reserves (surplus participation), unless the surplus participation is excluded by express agreement; the surplus participation can only be excluded in total.
(2) The insurer shall carry out the participation in the surplus in accordance with a causation-based method; other comparable appropriate distribution principles may be agreed.
(3) The insurer shall determine the valuation reserves anew each year and allocate them arithmetically in accordance with a cause-oriented procedure. On termination of the contract, half of the amount to be determined for this date is allocated and paid out to the policyholder; an earlier allocation may be agreed. Supervisory regulations on capital resources remain unaffected.
(4) In the case of annuity insurance, the end of the savings phase is the relevant point in time pursuant to paragraph 3 sentence 2.” On the basis of the wording of the law, life insurers believed that after the end of the savings phase – i.e. from the start of the pension – annuity policyholders were no longer entitled to a share in the hidden reserves, but that the hidden reserves accumulated up to the start of the pension were to be allocated once only on a pro rata basis at the start of the pension.
There should then no longer be any participation in hidden reserves that subsequently arise annually during the pension payment.
Regulator and insurance industry colluded to the detriment of policyholders
The elaboration “Participation of policyholders in valuation reserves” in cooperation between the Federal Financial Supervisory Authority (BaFin), the German Insurance Association (GDV) and the German Actuarial Association (DAV) came into force after passing through the urgent procedure with the adoption by the Board of Directors of the DAV on 03.12.2007 as a notice to the actuaries responsible for the proposal of the surplus participation. There, as a regulation agreed between the DAV, GDV and BaFin, the non-participation of annuity insurers in the hidden reserves from the time of annuity withdrawal is stipulated:
“Additionally, §153 para. 4 VVG that, in the case of annuity insurance, the allocation should take place at the time of the transfer of the annuity. After retirement, annuities are no longer eligible.”
As long as actuaries adhere to this, they do not have to fear that they will be accused of unprofessional conduct by the actuarial association. Accordingly, most pensioners have not yet seen any participation in the hidden reserves. According to authoritative jurists, this is contrary to the case law of the Federal Constitutional Court.
Regulatory authority clarifies entitlement of pensioners to participate in hidden reserves
In the meantime, the Federal Financial Supervisory Authority has therefore distanced itself from the assessment agreed with GDV and DAV at the end of 2007.
In “Hinweise zu einigen Auslegungsfragen zum Versicherungsvertragsgesetz (VVG)” of 25 May 2008 (reference: VA 21 – A – 2008/0033), the supervisory authority states:
“In order to avoid misunderstandings in the event of interpretation problems on some issues that arose due to the new VVG, BaFin draws attention to the following points: In the case of current annuities, provision must also be made for participation in the valuation reserves in accordance with § 153 VVG. This follows from the content of the BVerfG ruling of 26 July 2005 (1 BvR 80/95), which is to be taken as a basis when interpreting § 153 VVG.”
Pensioners can demand pension increases of up to more than 5%
This clarifies that private pensioners with pensions already in payment must also participate in the hidden reserves. Insofar as pensioners in private pension insurance policies have not yet received a corresponding pension increase as of 01.01.2008, they should contact their insurer and demand a share in the hidden reserves.
Although the wording of the law is not clear, the constitutional court ruling also shows, according to the supervisory authority’s assessment, that pensioners are nevertheless entitled to a share in the hidden reserves. Depending on the insurer, this can result in pension increases of up to more than 5% – a small consolation in view of the pension cuts of often more than 30% in recent years.
It is sufficient for affected pensioners to set their insurance company a short deadline for re-billing and additional payment.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
from www.experten.de (published on 08.10.2008)
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PhD, 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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