Demographic change and the resulting skills shortage are amongst the biggest challenges facing the German labour market at present. Institutions for occupational retirement provision (IORPs) are increasingly affected by this trend as well, especially since regulatory changes and the general economic environment are imposing ever greater demands on employees. What is more, IORPs – which are often relatively small compared to other financial service companies – are not only competing with one another in the search for skilled staff: they are also up against banks, insurers, investment companies and other employers.

BaFin surveys 158 IORPs

This prompted the Federal Financial Supervisory Authority (BaFin), as part of its 2024 supervisory programme, to investigate whether IORPs were facing a skills shortage or could conceivably see themselves encountering one in future, and which business units were already affected or were most likely to be affected going forward. BaFin also looked at how companies were dealing with the lack of suitably skilled staff. After all, it is clear that Pensionskassen and Pensionsfonds must maintain their financial and operational capacity at all times – alongside compliance with the regulatory requirements. If the skills shortage appears to be causing problems, companies should therefore waste no time in taking action.

Problems filling vacancies

The results of BaFin’s study reveal that most companies are not anticipating any issues recruiting to management boards, supervisory boards or key functions, at least not in the short term. However, it is a different story when it comes to IORPs recruiting new staff to other positions. Of those IORPs that planned or are planning to recruit to new positions or existing vacancies between 2024 and 2026, nearly one in two are expecting to encounter difficulties in the recruitment process.

Respondents suggested that the areas investments, risk management, claims processing and insurance portfolio management were particularly affected and that, especially in IT, the shortage of suitable personnel is jeopardising IORPs’ ability to fulfil their requirements under supervisory law. According to the companies, the main reason for their difficulties filling vacancies is the lack of suitably qualified staff (see Figure 1).

Figure 1: Reasons for IORPs’ difficulties recruiting new staff to fill vacancies

(c) BaFin

Outsourcing already seen as a potential solution

Many IORPs have acknowledged the problem and have either considered potential measures or already taken them, such as methods for retaining and upskilling staff and process automation. In addition, around 97% of the companies surveyed already outsource part or all of the required functions. Those undertakings that have not yet outsourced any functions (3%) or have only outsourced some functions (39%) are set to rely more on service providers in the future.

Besides economic and operational considerations, the risks also need to be taken into account when weighing up whether or not to outsource a function. Outsourcing does not make the problem of the skills shortage go away: responsibility ultimately remains with the companies. As a result of the high degree of (partial) outsourcing in the industry, questions surrounding (risk) management with regard to service providers are becoming increasingly significant – including for supervisory authorities. BaFin will continue to keep a very close eye on the implementation of outsourcing arrangements and, in particular, IORPs’ risk management in this regard (see info box).

Companies considering dissolution

Alongside outsourcing, IORPs are also giving significant consideration to transferring some or all of their insurance portfolio or even dissolving their businesses entirely (with the consequence that insurance contracts end and policy holders receive financial compensation). No fewer than 22 companies surveyed told BaFin that they are considering a (partial) portfolio transfer between now and 2030 due not least to the skills shortage, with 15 weighing up dissolution (see Figure 2). Some of the companies are already in discussions with BaFin on the subject and have held discussions with companies that could potentially take on parts of their insurance portfolio.

Figure 2: Companies considering insurance portfolio transfers and dissolution (multiple answers possible)

(c) BaFin

Overall, BaFin’s survey shows that the risk posed by the skills shortage is affecting IORPs to varying degrees. Although companies that perform all functions in house are particularly vulnerable, the lack of suitably qualified staff is also becoming an increasingly pressing issue for those that already outsource some functions.

BaFin will continue its work in this area

BaFin will therefore continue to study this issue by meeting with particularly affected companies to discuss possible measures, especially with regard to risk management. BaFin may also conduct further surveys about the skills shortage, focussing for example on the service providers involved or on other sectors of the financial industry. BaFin aims to raise awareness amongst companies and their service providers about the risk posed by a lack of suitably qualified staff.