GERMANY - A pay-as-you-go (PAYG) system which provides insolvency protection to company pension schemes will be financed in future by a fully-capitalised fund, to enable employers to meet claims amounting to e2.2bn, the government has confirmed.
The existing PAYG system, known in Germany as the Pensions-Sicherungs-Verein (PSV), requires companies who are obliged to be its members to make annual payments covering the pension liabilities of insolvent companies.
The new funded system will see member-companies make payments over a period of 15 years. It will cover not only the payments, but also the additional entitlements due to employees of insolvent companies, which would otherwise not be paid until the employee was at a pensionable age.
The fund will be financed by all the companies obliged to cover their risks via the PSV.
The creation of a new system has been prompted by the increased use of insurance companies by employers to provide externally-built pension funds.
Employers who build and administer their pension fund internally are obliged to be covered by the PSV, but externally-built funds using insurance companies do not have the same requirement.
A spokesman for the German labour and social affairs ministry (Bundesministerium fur Arbeit und Soziales) said the rise of externally built funds which were not supported by the PSV had created a risk in the future.
This had led members of the PSV to support the new system in a bid to offset “a huge wave of potential risks over the years,” he explained.
The new legislation was passed today by the cabinet, pending parliamentary approval.
The PSV currently ensures the entitlements of 8.7m workers and makes payments to 440,000 pensioners of companies which have gone into insolvency.
It has 60,000 member companies and the capital value of payments and entitlements under protection is e251bn.
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