“From an actuarial perspective, we see an urgent need for action both in the state-subsidized private pension scheme and in the company pension scheme,” said Susanna Adelhardt, the new deputy chairwoman of the German Actuary Association (DAV) at a virtual press conference of the DAV on Thursday (May 4th). .). The company pension expert, who is the head of company pension scheme at Evonik Industries in her main job, confirmed her statements at the recent DAV annual conference in Dresden.
According to this, the development of the state-subsidized Riester pension, for example, is stagnant or declining. In fact, the need for private provision is becoming increasingly important, also because demographics are leaving their mark on all layers of the pension system. “This is all the more true because, despite the turnaround in interest rates, real interest rates are clearly negative due to increased inflation,” emphasizes Adelhardt. The DAV did not want to confirm whether the system would ultimately fail in the face of growing demographic problems. As mathematicians, actuaries traditionally stick to predictable trends and facts. Nevertheless, some comments leave little to be desired in terms of clarity.
Adaptation of the political framework definitely necessary
As a result, people’s financial expenditure for a funded provision, which also compensates for the negative real interest rate, increases. State-subsidized collective old-age provision is more important than ever, as it contributes to cushioning the effects of demographic development on the individual with life-long additional pension payments in old age. “The political framework conditions definitely need to be adjusted,” demands the actuary. The reduction of bureaucratic hurdles as well as an increase in earnings prospects, for example through reduced guarantees, are urgently needed in order to make the pension system future-proof.
Small and medium-sized companies in particular need to spread the company pension scheme with its collective benefits, but Adelhardt warned that the companies’ overall budget is limited. As a result, the current structure of the bAV is not generation-fair. “Employers only have a certain endowment framework and therefore a limited budget for company pension schemes, which is already being used to a large extent for the current generation of pensioners,” explains the expert. Since this funding framework cannot be changed arbitrarily, it is important to address the problem of the lower supply of younger generations with different interventions.
Current company pension scheme not generation-fair
Background: For more intergenerational justice, some of the old company pension commitments would have to be diverted in favor of the young. However, labor law is opposed to this, since commitments under labor law are given for the entire duration and downward adjustments are hardly possible. “Action is overdue here,” says Adelhardt. She suggested making changes to supervisory law. This currently stipulates that pension funds must also guarantee constant cover during the savings phase, although early payment is only the absolute exception. “Here, too, we see a need for reform,” said Adelhardt. “It is crucial that the funds are available when they are due and not in all the years and decades before that.”
In the event of a temporarily negative development in the capital market, the current supervisory obligations to ensure permanent compliance lead to shifts to low-risk investments – at the expense of earnings and thus at the expense of later pensions. With other regulations, the time factor could be used as an additional risk buffer in the interests of current workers in order to improve their pension prospects.
Life insurers will only benefit from higher interest rates in the medium term
Speaking of returns: “A market-wide and significant increase in profit participation through the reduction of the additional interest reserve is not yet to be expected from life insurers and thus also from their company pension schemes,” said Maximilian Happacher, new chairman of the DAV, at the press conference. The abrupt change in inflation in 2022 and the interest rate environment that reacted to it had a reducing effect on insurers’ additional interest reserves (ZZR) for the first time since their introduction. While in 2021 the reference interest rate fell by 16 basis points and an associated allocation of ten billion euros to the ZZR, the ZZR 2022 fell by around four billion euros to 92 billion euros thanks to the stagnating reference interest rate (1.57 percent).
“In view of the current development, we are assuming that the reference interest rate will remain stable this year,” says Happacher, who is a member of the board of life insurance at Ergo International in his main job. Under these circumstances, a comparable decline in the ZZR as in the previous year can be expected in 2023. Overall, the new interest rate situation has led to changed conditions for the insurance industry. “In the medium to long term, life insurers will also benefit from the higher interest rates,” Happacher is convinced. The DAV had advocated maintaining the maximum discount rate for life insurers at 0.25 percent until 2024.
ZZR does not compensate for hidden burdens in the short term
Currently, however, long-term fixed-interest securities and the changed interest rate environment have resulted in more hidden burdens in the HGB balance sheet – around 50 billion euros across the industry at the end of 2022. “This does not compensate for the comparatively slowly released ZZR in the short term,” says Happacher. In principle, however, these hidden burdens are not a problem for the companies, since the burdens are dissolved by holding the papers to maturity.
They would only have to be released before maturity if liquidity requirements were significantly higher than expected. “We are currently not seeing that in life insurance on a broad basis, especially since the cancellation rates have been very stable at a low level over the past few years,” added the DAV boss. Even in 2022, when there was greater uncertainty among the population due to high inflation, the industry association GDV referred to a cancellation rate of around 2.6 percent. “That’s just slightly above the value of 2020 and 2021 and even below that of 2019, when it was 2.68 percent,” Happacher classified the development.
A look at the solvency ratio of life insurers paints a very positive picture for DAV. Background: The solvency ratio describes the ratio of own funds to obligations towards insured persons and other beneficiaries in the event of a risk and should be at least 100 percent. According to Assekurata, the industry had a solvency ratio without transitional measures including volatility adjustment of 345.8 percent in 2022 (previous year: 283.8 percent). “That’s an extremely solid value,” says Happacher. (dpo)
2023-05-04 16:09:22
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