GERMANY - ‘Pensionsfonds' are expected to rise in popularity over the next few years as occupational pension schemes begin to take centre stage in Germany.
Pensionsfonds were set up as part of the German government's reform package. They are the first tax-qualified funding vehicles which are not subject to the same investment restrictions that apply to German insurance companies.
But their popularity as a pensions instrument is expected gain weight among employers since they remain unaffected by the financial performance of the company, according to ratings agency Standard & Poor’s.
Overall, occupational schemes in Germany are set to increase over the medium term, partly due to a burgeoning state system, as well as pressure from labour unions to include occupational pensions as part of an employee's total remuneration package.
Although Standard & Poor's continues to view pensions obligations as having debt-like characteristics, it is also acknowledged that companies enjoy varying degrees of discretion with regard to whether or not they have to meet shortfalls in the short term, and, if so, how and when, said Eve Greb, a credit analyst at Standard & Poor's Corporate Ratings Europe.
Disclosure of pensions liabilities under the German accounting standard GAAP is limited. In most cases, only the amount of pension provisions and pension expenses are disclosed under personnel expenses.
“Consequently, the required convergence to international accounting standards (IAS) by 2005 should lead to more transparency on pensions issues and may trigger changes in funding and investment strategies,” added Greb.
“Furthermore, the trend toward the use of third-party pension funding, as well as an easing of the regulatory restriction that limits the investment of pensions assets in shares, is likely to lead to a greater exposure to stock market volatility. Currently, there are four others types of occupational schemes in Germany, each of which make a significant difference to a company's balance sheet liabilities.
The schemes comprise:
- Direct promise, which is similar to a defined-benefit pension plan or individual contract, but which is only recognised in the form of provisions without any actual cash funding.- Pensionskasse, which is a special insurance vehicle, set up by a company or a consortium of companies for employees.- Support funds, which are separate legal entities that provide benefits on behalf of the employer.- Direct insurance, for which employers obtain a life insurance contract on behalf of their employees. Policies can be in the form of individual or group contracts.
Direct promise schemes and Pensionskassen are the most common schemes at present, but S&P projects an growing trend towards the use of externally funded schemes such as Pensionskassen and the new Pensionsfonds.
The research - ‘Occupational Pension Schemes Rise to Prominence in Germany’ - is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.RatingsDirect.com.
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