The German financial regulator BaFin has said that some pension funds were under increased pressure last year due to the prolonged low-interest-rate environment.

According to the regulator’s latest annual report, released this week, the subsequent interest rate rise allowed for the improvement of earning opportunities when it came to new investment and reinvestments. However, it noted that hidden reserves fell and many funds did incur hidden liabilities.

In addition, BaFin said that the number of funds under intensified supervision fell slightly and remained below 20 at the end of the year. It also said that some funds had failed to meet solvency requirements by the end of 2024. In total, BaFin supervises 35 funds in Germany.

In Germany, pension funds are split into pensionskassen and pensionfonds, with the difference between the two being their investment strategies and legal structures.

According to BaFin, the former is more likely to invest in lower-risk assets, while the latter has more flexibility and can invest in a broader range of assets, including stocks and real estate.

Pensionskassen, it says, are ‘[…] life insurance undertakings that provide cover against loss of income’. A pensionsfond, meanwhile, offers ‘[…] occupational retirement provision and death grants for surviving relatives in the form of a funded pension scheme’.

BaFin's analysis found that pensionsfonds were less impacted by the lower interest rates of 2024 than pensionskassen.

“All pensionsfonds,” wrote BaFin in its report, “were less severely impacted by the low-interest phase than pensionskassen. Economically, all pensionsfonds were able to fulfil the four scenarios of the forecast as of 30 September 2024.”

It added: “In the insurance-based business, in which pension funds themselves bear the risk for the fulfilment of obligations, however, the rise in interest rates led to hidden burdens. All of the 35 pension funds supervised by BaFin funds had sufficient own funds for the 2024 financial year and for the four subsequent financial years.”

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