For many employees, company pensions are an attractive supplement to their own pension, which the employer can contribute to as well. In many cases, financing is provided through direct insurance, pension funds or schemes. The last two are described as “institutions of company pensions” (in short: EbAV). Direct insurances are offered from life insurance companies and fall under the Solvency II directive relevant to the insurance company (not for EbAV). On 23.12.2016, the new EU directive 2016/2341 (in short EbAV II-directive) was implemented for EbAV, which replaced the old one from 2003.
Supervisory minimum standards are being redefined throughout Europe for the activities and supervision of EbAV. They have a primary effect on the governance and information obligations and pursue, among other things, the following goals:
- Protection of the rights of pension recipients and increase of consumer protection
- Standardization and uniform application of supervisory rules within the EU
- Appropriate recognition of the social function of the EbAV and reinforcement of the triangular relationship between the employee, employer and the EbAV
- as well as an increase in the transparency of the bAV
The EbAV II directive was included in German law through an amendment to the Insurance Supervision Act (VAG Part 4) (in short EbAV II-directive) was implemented for EbAV, which replaced the old one from 2003.
What exactly changes?
- Company organization
Based on Solvency II, the three key functions of risk management, internal revision and actuarial functionality will be implemented:
Risk management is responsible for performing a regular, independent and comprehensive risk assessment - “Own Risk Assessment”, in short ORA - and document this as well. The assessment is normally performed every three years. It includes an examination of the effectiveness of the entire risk management system as well as financing needs and should ensure protection of the entitlements and claims from those entitled to benefits (§ 234 c and d VAG).
The intern Revision is an independent examination body and normally directly subordinate to the management. The person who has this function may not take on any other function in the company (§ 234 para. 2).
The actuarial function determines if the assumptions are appropriate and calculates the actuarial reserves. The tasks overlap with those from the responsible actuary according to German law. They may also be performed by an official in the personal union (§ 234 b para. 5).
In order to relieve medium and smaller EbAV, a proportionate approach is legally planned in regard to the business organization as well as the implementation of the ORA. This makes it possible to consider the size, type, scope and complexity of the business activities as well as the individual risk profile of the EbAV.
- Cross-border activities of an EbAV
The rules for the cross-border activities of an EbAV and portfolio transfers between the EbAV within the EU were amended. Employees who work at international companies should be able to continue their bAV without any problems during deployment to another member state (§ 241 - § 243 b VAG).
- Comprehensive information obligations
With the EbAV II directive, new comprehensive information obligations were implemented for pension recipients and members - even potential ones. Specifics were regulated in a VAG Information Obligation Ordinance (VAG-InfoV) in the federal gazette and have applied since 18.06.2019. A difference is made between information that must be shared before entrance, upon beginning, during the qualifying period and ultimately for the recipients.
- Exclusion of functions
With an existing or planned exclusion of processes and key functions, increased requirements apply for the selection and monitoring of service providers (§ 234 e VAG). Responsible authorities are authorized to demand information about outsourced activities from the EbAV and the service providers at any time. Corresponding documentation should be created about this and contractual regulations made.
With this directive, EbAV should be required to place increased consideration on the sustainability of capital investments (§ 234 d para. 2, no. 8 VAG). In light of the ORA, they must provide information about if and to what extent environment, climate, social and company leadership aspects are considered in the investment policies.
With the new EbAV II directive, the requirements for the execution of a bAV for employers and EbAV, in particular for smaller institutions, have increased. The main points of criticism from the national associations (aba, GDV, IVS) are that, on the one hand, the possible room for implementation in the national laws is not used. On the other hand, the specifics in the German bAV do not receive enough attention, for example, the requirements for the ORA and the fear of too much Solvency II with EbAV. However, it should be emphasized that many things that were unclear were eliminated with the publication of VAG-InfoV. Nevertheless, there are still many points that are unclear and require interpretation. It must therefore be expected that further ascertainments by the BaFin will follow in the future.