Pensionskassen

In accordance with section 232 of the VAG, Pensionskassen are life insurance undertakings that provide cover against loss of income. They are subject to the provisions of the VAG that apply to life insurers, with adjustments specific to Pensionskassen. The applicable provisions depend in part on whether the Pensionskassen are regulated (section 233 of the VAG) or unregulated. Pensionkassen can apply to be regulated. The prerequisites for regulation include, for example, that these organisations must be mutual societies that do not charge any actuarial acquisition cost loadings for the intermediation of insurance contracts and whose articles of association stipulate that pension claims can be reduced. Some Pensionskassen, in particular those that are common institutions (gemeinsame Einrichtungen) within the meaning of section 4 (2) of the German Collective Agreements Act (Tarifvertragsgesetz – TVG) established under a generally binding collective bargaining agreement, are always considered regulated Pensionskassen.

The regulation status is especially relevant for the following points:

• The general policy conditions and the tariffs and principles for calculating the premiums and the technical provisions, including the actuarial assumptions, must be approved by BaFin. Non-regulated Pensionskassen are only obliged to submit such documentation to BaFin.
• The provisions of the German Minimum Allocation Regulation (Mindestzuführungsverordnung – MindZV) on allocations to the provision for bonuses only apply to non-regulated Pensionskassen. Regulated Pensionskassen are subject only to the articles of association and any other regulations governing the profit participation.
• The responsible actuary, who must be appointed by all Pensionskassen, has to submit to BaFin an explanatory report and an appropriateness report only for non-regulated Pensionskassen, as in the case of other life insurers.

Pensionskassen must invest their assets in accordance with the prudent person principle. For the guarantee assets (Sicherungsvermögen) the provisions of the German Investment Regulation (Anlageverordnung – AnlV) additionally apply. These contain, along with a schedule of investments, detailed quantitative rules for the diversification and spread of investments, also with regard to investments in sponsoring undertakings.

The rules for the solvency of Pensionskassen are set out in the German Capital Resources Regulation (Kapitalausstattungsverordnung – KapAusstV). Unlike for undertakings subject to Solvency II, the solvency capital requirement (SCR) applicable to Pensionskassen continues to be determined based in particular on specific percentages relating to the technical provisions and the capital at risk. One-third of the solvency capital requirement is considered the minimum capital requirement (MCR), the minimum amount of which is 3 million euros (or 2.25 million euros for mutual societies). There is no minimum amount for the minimum capital requirement for Pensionskassen in the legal form of a mutual society whose annual premiums or contributions have not exceeded 5 million euros in three consecutive years.

Pensionsfonds

Pensionsfonds are pension schemes with legal personality that offer occupational retirement provision and death grants for surviving relatives in the form of a funded pension scheme. However, unlike Pensionskassen, Pensionsfonds are not permitted to guarantee for all entitlements, in the same way that an insurance contract provides such a guarantee, the level of benefits or the level of future contributions required to provide a given level of benefits. Pensionsfonds are subject to the provisions applicable to life insurance undertakings taking the form of Pensionskassen, with the necessary adjustments specific to Pensionsfonds.

The conditions for the systematic provision of benefits are specified in the pension plans, which must be submitted in advance to BaFin. The following pension plans in particular are managed by Pensionsfonds:

• The Pensionsfonds provides a defined-benefit plan. In this case, it can provide a guarantee of retirement benefits in the payout phase. The VAG, however, provides for the option that the Pensionsfonds itself does not provide a guarantee for retirement provisions. Rather, the employer carries the risks involved and, in this case, is obliged to pay additional amounts, if any, during the payout phase (section 236 (2) of the VAG).
• The Pensionsfonds provides DB contribution based schemes. The minimum benefit at the end of the accumulation phase can be guaranteed by the Pensionsfonds or by the employer. In the payout phase, the pension capital is annuitised either in the form of a pension guaranteed by the Pensionsfonds or without any guarantee by the Pensionsfonds, yet with a minimum pension payment guaranteed by the employer (section 236 (3) of the VAG).

Pensionsfonds must invest their assets in accordance with the prudent person principle. For the guarantee assets (Sicherungsvermögen) the provisions of the German Regulation on the Supervision of Pensionsfonds (Pensionsfonds-Aufsichtsverordnung – PFAV) additionally apply. They contain, along with a schedule of investments, detailed quantitative rules for the spread of investments, also with regard to investments in sponsoring undertakings.

Unlike Pensionskassen, Pensionsfonds can invest their assets in a more risky way since there are only limited quantitative rules regarding the diversification of their investments.

The VAG also grants Pensionsfonds, unlike Pensionskassen, the option of temporary underfunding of the guarantee assets. This is limited to 5 per cent of the technical provisions. In the case of underfunding, a recovery plan specifying how complete coverage will be re-established must be submitted for approval to BaFin. The plan must not exceed a period of three years. For pension plans under section 236 (2) of the VAG, underfunding may amount to a maximum of 10 per cent of the technical provisions. Upon request, BaFin can extend the time period for the recovery plan up to a maximum total period of ten years.

Along with the rules on the investment of the guarantee assets, the requirements on solvency and the actuarial assumptions for calculating the premium reserve for Pensionsfonds are set out in the PFAV. The individual requirements depend on whether the Pensionsfonds has provided guarantees and therefore bears the risk itself. In this case, the solvency capital requirement calculation, as with Pensionskassen, is based in particular on certain percentages relating to the technical provisions and the capital at risk. One-third of the solvency capital requirement is considered the minimum capital requirement. If the Pensionsfonds provides guarantees, a maximum technical interest rate is used to calculate the premium reserve; this rate is currently equal to the interest rate in the German Premium Reserve Regulation (Deckungsrückstellungsverordnung – DeckRV). In cases of commitments that are not guaranteed, a technical interest rate is applied that is based on the projected yields of the Pensionsfonds’ investments. The minimum amount for the minimum capital requirement for Pensionsfonds is 3 million euros (or 2.25 million euros for mutual Pensionsfonds).