“Very strict” German pension scheme coverage ratios must be adjusted, the Arbeitsgemeinschaft für betriebliche Altersversorgung e.V. (ABA) has argued.

The ABA, which is the association representing occupational pensions in Germany, has stated that in order for pension funds to be able to allocate to investments with higher returns, as provided for in the coalition agreement, further developments of the coverage requirements and the BaFin stress test for pension funds are necessary.

“The ABA is calling for an adjustment to today's very strict coverage regulations for pension funds, according to which they must cover their actuarial obligations 100 per cent with security assets at all times (especially book values) and meet the solvency requirements at all times. These requirements limit our options for investing,” ABA head, Jürgen Rings, said at the association’s conference.

“If we want to take into account the political will in the coalition agreement, according to which funds for company pension purposes should be invested to a greater extent in forms of investment with higher returns, then we need more flexibility in the coverage requirements.”

ABA deputy head of the investment and regulatory committee, Dr. Stefan Nellshen, explained that the current regulatory requirements in Germany donot fit the business model of pension funds, which have long-term obligations.

Therefore, the ABA argued that guaranteed benefits should be funded and paid when they are due. In this sense, according to Nellshen, modified coverage requirements are being discussed, which, under certain conditions, allow a temporary underfunding (at book values) over a defined tolerance period. The prerequisite for this should be a corresponding “standby agreement” between the pension fund and one or more sponsoring companies.

This would mean that relevant providers are required to close any existing underfunding over the tolerance period (if they do not close themselves due to corresponding capital market developments).

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