12 October 2007

ABA: Funds need flexibility to compete with Belgium

Regulations relating to the underfunding of Pensionsfonds are 'too strict' for the retirement vehicles to be competitive in the European market, German insurance experts and pension fund associations have suggested.

Pensionsfonds can only fall to a 95% funding level which has to be improved to 100% 'immediately' according to regulations. So critics want the allowed level to be set at 90% with an option to pay the difference over a 10-year period.

"One of our arguments is that Pensionsfonds should be competitive in the European market," Klaus Stiefermann, managing director of German occupational pensions lobby aba, told IPE. "And this is also what politicians want." To achieve this, regulation should be similar to frameworks existing in other European countries, he explained. "Because Pensionsfonds are investing over a very long term, there is no need for a 100% funding level at all times," Stiefermann noted.

On the contrary, the aba head thinks more flexibility will bring more chances than risks for pension funds. Stiefermann argues it would first of all increase the competitiveness of Pensionsfonds with retirement vehicles from countries like Belgium. Secondly, Pensionsfonds would gain greater flexibility in their investment opportunities as they could take more calculated risk in their portfolios.

Stiefermann is convinced the increase in the allowed underfunding level would be well within the limits set by the European pensions directive as other countries already offer far greater flexibility.

"Looking towards Europe, this is a necessary step to boost the German Pensionsfonds sector," Stiefermann pointed out. "We have to communicate that this increase in the allowed underfunding level will still ensure pension payouts are secured," he added. "Some politicians are still not convinced that this is true."

Proposals were presented last year prior to amendments in the relevant legislation, the insurance supervisory regulation. However, no majority could be achieved in parliament and the issue was postponed until the next amendment, which is currently being negotiated.

A group of insurance experts last year filed a report to the parliament fully supporting the demands by the Pensionsfonds, suggesting 'rescue plans' for pension arrangements should, in turn, have to get the 'all clear' from the financial supervisor.

The German association of insurers (GDV) noted the 'too strict' regulations were causing problems especially for smaller companies. Having to sell off assets in times when markets are turbulent and the pension plan is slightly underfunded was putting a strain on some companies. So Stiefermann is positive the amendment will go through this time.

A hearing on the issue will be held on October 22 by the finance committee of the German parliament. This year, the right-wing opposition party FDP has announced support for the demands.

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