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Low interest rates threaten company pensions

2022-01-09T09:51:06.013Z


The central banks' zero interest rate policy is putting insurers and pension funds under pressure. With some health insurers, there is a risk of cuts in the company pension if the employer does not compensate for the gap. Some life insurers also have to reach for the ceiling.


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Pension funds under pressure:

company pensioners face financial losses due to the low interest rates

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imago images / Shotshop

In the low interest rates, further company retirees could face financial cuts in the next few years. In a number of pension funds, the sponsoring companies are ready to inject more money in order to avoid cuts in company pensions for employees, said Germany's top insurance supervisor Frank Grund. “However, the cases where there is no corresponding commitment by the employer are problematic. It cannot therefore be ruled out that there will be further cuts in benefits in the next few years, but I do not expect any larger cases. "

According to Grund, around 90 percent of the obligations of pension funds will be fully protected by the pension insurance association from the beginning of 2022.

This takes over when a pension fund cuts its benefits and the employer cannot make up the difference, especially due to bankruptcy.

Not all pension funds are protected by the pension insurance association

In the past, the Caritas pension fund and its sister company, the Cologne Pension Fund, had to cut benefits.

Of the 135 or so pension funds, around 40 are currently under closer observation.

"Pension funds have a harder time than life insurers because they only offer lifelong guarantees and cannot switch to other products," said the executive director of the financial supervisory authority Bafin of the German press agency.

Life insurers now largely only offer products with a stripped-down guarantee when it comes to new business.

Grund confirmed to German life insurers that "in view of the challenges posed by the low interest rates, it has come through the pandemic pretty well so far."

"We're not really worried about meeting our obligations to customers."

Around 20 life insurers are under intensified supervision by Bafin.

20 life insurers under intensified financial supervision

In times of low interest rates, insurance companies are finding it increasingly difficult to generate the high interest promises of the past. "We assume that interest rates on the financial market will remain low for the foreseeable future," said reason. In order to secure the high commitments from the old contracts, the insurers have had to put money back since 2011. The capital buffer - called ZZR in technical jargon - will increase by around 9.5 billion euros for 2021, according to the Bafin forecast, with around 6 billion euros likely to be added this year. "In the next few years we expect a further development of the ZZR, the scope and timing, however, depend on the specific interest rate development," said Grund.

At the same time, Germany's top insurance supervisor warned that one or the other insurer would have to “make an effort” to fully meet the capital requirements of the European capital and supervisory rules (Solvency II) from 2032 without any relief.

"Theoretically, the following applies: insurers with a high probability that they will not meet the capital requirements in 2032, we would have to delete the transitional measures today," explained Grund.

«We currently see no reason for this.

The hurdle for this is relatively high anyway. "

The company would then have the option of increasing its capital.

“If that didn't work, it would lose its license and no longer be allowed to do new business.

However, the claims of the insured would be guaranteed. "

la / dpa

Source: spiegel

All news articles on 2022-01-09

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