Pension provision

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Pension provisions (Engl. Pension provisions ) are accounting provisions for contingent liabilities from company pension for the benefit of eligible employees .


Accounting regulations

Since it is unclear in the case of obligations from company pension schemes whether, when and in what amount a payment will be made to the beneficiary, no liabilities are recognized for this , but provisions. In this context, the term pension stands for company retirement provision, sometimes (especially for tax purposes) only for the direct commitment (immediate pension commitment). It is not a requirement that a lifelong pension be paid; Pension provisions are also set up for commitments for one-off lump-sum payments or for mixed forms.

Pension provisions are shown on the liabilities side of the balance sheet. The build-up is usually charged to the income statement , but may also be posted directly to equity with no effect on income . Increases the value proposition is called additions , reductions resolutions . Resolutions resulting from supply payments are also called consumption . Sometimes the terms are used exclusively (i.e. resolution only if there is no consumption).

Whether and in what amount a pension provision must or may be formed is assessed differently according to the various regulations. In any case, it is crucial that the obligation arose in the past and was economically caused and that the claim is sufficiently probable. In addition to the actual assessment of the scope of the obligation, the objectives of the various annual financial statements also play a role in the valuation: the tax balance sheet is used to assess the tax so that the accounting regulations are also determined by fiscal policy . The German trade balance is the basis for the distributions, so the principle of prudence is in the foreground here . And the consolidated balance sheet according to IFRS primarily serves the goal of "providing information about the asset, financial and earnings position and cash flow of a company that is useful for a wide range of addressees to make economic decisions", so here a as realistic as possible image should be drawn.

When creating provisions, it must be checked in any case whether and to what extent the company actually has its own obligation. In the case of a direct commitment, the company pays the benefits directly to the beneficiary, so that it has to create a provision in accordance with all regulations. However, here too there are design variants according to which the company no longer has its own obligation from an economic point of view (for example in the case of assumption of debt with the assumption of performance by another company). Whether a provision has to be created for the indirect implementation routes is assessed differently according to the various sets of rules.

With regard to the amount of the provision, it should be noted that at the time the balance sheet is drawn up it is unclear whether, when and / or in what amount the company has to make pension payments. Therefore one takes place Review of pension obligations under actuarial principles. As with every cash value calculation, discounting is carried out, and the probability of its occurrence is also taken into account for each future payment .

Financing effect through pension provisions

The literature occasionally speaks of the financing of company pension schemes through pension provisions. In this way, the internal financing of the direct commitment is to be differentiated from the forms of financing of the indirect implementation channels. The pension provisions in the German trade balance tie up funds in the company that would otherwise have been distributed to the shareholders. Another internal financing effect arises from the fact that tax payments are avoided or postponed via the pension provisions in the tax balance sheet, which also remain in the company and can be used productively.

However, these effects alone do not guarantee that the pension payments can actually be made. In addition, it must be ensured that sufficient liquid funds are available when they become due. The creation of pension provisions alone - even if they have been created in sufficient amount - does not ensure the financing of the company pension scheme.

Some of the companies are therefore building up reinsurance. Depending on the company's objectives, it can be a reinsurance policy or other assets. Reinsurance is not only used for financing, but also to some extent for risk protection (especially in the case of reinsurance). The reason for building up assets is often the look of the balance sheet. For example, pledged reinsurance policies and assets in a trust model are recognized as cover assets according to HGB and as plan assets according to IAS 19, so that they are to be valued at fair value and offset against the obligation.

Trade balance (Germany)


The basic approach to pension provisions is not explicitly regulated in the HGB. The pension obligations are, however, an uncertain liability for which a provision must be made in accordance with Section 249 of the German Commercial Code. In Art. 28 EGHGB this obligation to passivate is restricted again. If it is a direct commitment, no provision needs to be made if the initial legal claim was acquired before January 1, 1987. If there is an indirect commitment (i.e. if the company pension scheme takes place via one of the implementation channels of the support fund, pension fund, pension fund or direct insurance), no provision needs to be made either. However, if this passivation option has been used, information in the notes to the balance sheet is mandatory.

The HGB prescribes the passivation under the balance sheet item “Provisions for pensions and other obligations” ( Section 266 (3) B 1 HGB). In the income statement , the addition is shown correspondingly in the item “Social security contributions and expenses for pensions and support” ( Section 275 (2) No. 6b HGB).

Changes to the provision account are posted against the income statement, additions are expenses, releases are income. Insofar as additions result from the discounting of the obligations, they are recorded in the financial result (as "interest and similar expenses" or "other interest and similar income"). The remainder of the addition is reported either as "pension expenses" (as part of personnel expenses) or "other operating income / expenses".

Cover assets

Assets that only serve to meet pension obligations (plan assets) are netted against the pension provisions so that only the difference has to be accounted for. Cover assets are not valued according to the lower-of-cost-or-market principle , as is usually the case , but rather at fair value . However, the difference between the fair value and the amortized cost is subject to a distribution block . Assets (mostly securities or reinsurance policies) that are pledged to the beneficiary or transferred to a trustee as part of a contractual trust arrangement (CTA) come into consideration as cover assets .


The HGB contains only a few specific regulations on the amount of pension provisions. According to Section 253 (1) of the German Commercial Code (HGB), pension provisions are to be recognized “in the amount of the settlement amount necessary according to a reasonable commercial assessment”. If consideration is no longer to be expected for a pension obligation (this applies in particular after the employee has left), the present value of the obligation is decisive. There is no specific regulation for employees who are still employed in the company in the HGB.

The amount of the provisions is based on the expected settlement amount so that future increases in salaries and pensions (pension dynamics) must be taken into account. Future salary increases also include so-called career trends.

interest rate

One of the most important valuation parameters is the discount rate for discounting. The actuarial interest rate is set according to the market interest rate on the basis of zero-coupon fixed-rate swaps (but with a surcharge in order to achieve the level of corporate bonds with a high-class rating). The term of the examined securities should be based on the term of the obligation. For company pension schemes and comparable long-term obligations, a 15-year term can be assumed for the sake of simplicity. The discount rate corresponds to the 10-year average of the observed interest rate. The interest rate to be used is regularly set bindingly by the Deutsche Bundesbank and published on the Deutsche Bundesbank's internet portal .

Biometric calculation bases

Since both pension entitlements and ongoing pension payments depend on biometric factors, the settlement amount must be determined in accordance with recognized actuarial rules .

The Heubeck mortality tables 2005 G were published on July 20, 2018, the structure of which essentially corresponds to that of the mortality tables 2005 G and is intended to replace them.

The mortality tables contain the probabilities of death (divided into active, disabled and pensioners), probabilities of disability, probabilities of being married at death and the average age of the spouse at death. The probabilities are listed as one-year probabilities for every age, year of birth and both genders. As generation tables, they take into account the year of birth by applying a mortality trend to the base table.

Transitional regulation from the Accounting Law Modernization Act (BilMoG)

If the first-time application of the BilMoG in 2009 resulted in an increase in the pension provisions, the resulting additional expense could be spread over 15 years. Even distribution is not required, but at least one fifteenth of the original difference must be accumulated every year. If the pension provisions were to be reduced, it was necessary to check whether there would still be additions of the same amount in the following 15 years. Insofar as additions were to be expected, there was the option of reversing the pension provision and then posting it directly against the retained earnings or not making the reversal. If, on the other hand, no additions were expected, the liquidation was to be carried out with an effect on income. In practice, there are still outstanding positive differences in many companies from the initial application of the BilMoG.

Tax balance (Germany)


Pension provisions in the tax balance sheet are regulated in Section 6a EStG. In addition, however, the principle of relevance according to Section 5 (1) sentence 1 EStG must be observed.

In accordance with the principle of relevance, the commercial law provisions for determining profits also apply in the tax balance sheet, unless the law contains any deviating tax regulations. In principle, a commercial passivation obligation also leads to a tax passivation obligation, while a commercial passivation option leads to a tax passivation ban. Since § 6a EStG allows passivation for all direct commitments, this means:

  • The obligation under commercial law to passivate direct commitments issued on or after January 1, 1987 also applies to the tax balance sheet.
  • The commercial law passivation option for direct commitments that were issued before January 1, 1987, also leads to a passivation option for tax purposes, as Section 6a of the Income Tax Act allows passivation.
  • The commercial law passivation option for indirect commitments leads to a tax passivation ban, since § 6a EStG does not apply to indirect commitments.

In any case, passivation is only permitted to the extent that it is

  • the beneficiary has a legal entitlement,
  • the pension commitment has been made in writing,
  • the pension commitment does not contain a tax-damaging reservation of revocation and
  • the benefits do not depend on future earnings-related earnings.

A provision can be created for the first time after the commitment has been made if the beneficiary has already reached a certain minimum age by the middle of the past financial year. This is to take into account the effect of fluctuation on the obligation value. The different regulations are based on the different conditions for the occurrence of vesting . The minimum age is:

  • 23 if the commitment is made on or after January 1, 2018;
  • 27 if the commitment is granted from January 1, 2009 to December 31, 2017;
  • 28 if the commitment is granted from January 1, 2001 to December 31, 2008;
  • 30 if granted by December 31, 2000.


For tax purposes, the present value of the obligation is also to be applied for ongoing benefits and vested benefits. The tax partial value procedure is explicitly regulated for active applicants . According to this, a constant fictitious premium to be paid annually in advance (the partial value premium) must be determined in such a way that its present value at the beginning of the employment relationship is equal to the present value of the entire entitlement. The partial value on the respective balance sheet date is then obtained by subtracting the cash value of the outstanding partial value premiums from the current cash value of the entitlement.

Future increases in pension benefits may only be included in the valuation according to the key date principle if they have already been determined on the balance sheet date. The discount rate is fixed at 6%. Proceedings are currently pending at the Federal Constitutional Court to clarify whether the level of this interest rate violates the principle of equality.

If provisions have not been set up in the past, they may not be made up until the employee leaves the company with a vested benefit or until the insured event occurs (fiscal catch-up ban). Certain increases in pension provisions may be spread over three years. In addition, the income tax guidelines contain a number of explanations and detailed regulations on the admissibility of pension provisions .

International standards


The treatment of company pension schemes in international or foreign annual financial statements is regulated in the following standards:

  • International standards according to IAS / IFRS : IAS 19
  • US-American standards according to US-GAAP : ASC 715
  • British standards under UK-GAAP : FRS 102

For the question of the balance sheet presentation, it must be checked according to international or foreign standards whether the commitment is a contribution ( defined contribution ) or a performance commitment ( defined benefit ). In the case of a pure contribution commitment, the obligation only exists in the payment of contributions to an external pension provider; the risk of investing funds is borne entirely by the employee. Identification in the company's balance sheet is then not necessary. While defined contribution plans are in Germany because of the secondary liability of the employer to § 1 1 p 3 of Para. Occupational pension law very difficult. Under certain conditions, however, commitments can be treated like contribution commitments. This applies to direct insurance , for example , but only under certain additional conditions for pension funds and pension funds .

In the case of a performance commitment, on the other hand, a fixed performance is promised, and the employer is responsible for fulfilling the performance. This includes all direct commitments and support fund commitments . In the case of performance commitments, the extensive accounting and valuation regulations according to international or foreign standards apply.

For the standard IAS 19, another group, the contribution based promises , has been discussed for some time . However, implementation is currently not in sight.

Actuarial valuation

While pension provisions are reported according to the so-called balance sheet-based approach according to German commercial and tax law, the expense-related approach prevails abroad and also according to the international standard IAS / IFRS . In the balance sheet approach, the pension provisions are initially determined actuarially; the expense then results (among other things) from the change in the provision account compared to the previous year. With the expense-related approach, the expense is already determined at the beginning of the year; the pension provisions result from (among other things) adding the expense to the previous year's level.

In the assessment, future increases in salaries and pensions are to be taken into account in accordance with the long-term expectations of the company. The discount rate is based on first-class industrial bonds, alternatively on government bonds. The decisive evaluation procedure for all standards is the Projected Unit Credit Method . The basic actuarial values ​​are the same according to the three most important standards:

  • The DBO ( Defined Benefit Obligation ) or - according to ASC 715 - the PBO ( Projected Benefit Obligation ) is the present value of the services earned up to the balance sheet date. When it comes to the question of which part of the pension commitment has already been earned, both the provisions of the pension commitment and non-forfeitability must be taken into account.
  • The service cost corresponds to the present value of the part of the obligation that will be earned over the next year.
  • The interest cost corresponds to the interest rate of the DBO or PBO. If pension benefits are already being paid, it should be noted that they reduce the interest carrier for the coming year.

Plan assets

If there are plan assets that only serve to meet the pension commitments and are not available to creditors in the event of insolvency, the DBO and the value of the plan assets can be offset against each other. In German commercial law, there was a ban on offsetting , but this was converted into a netting requirement by the Balance Sheet Modernization Act. The requirements for plan assets vary according to the various standards.

According to IAS 19, for example, plan assets are:

Gains and losses

The expected DBO for the next year is calculated by increasing the DBO by the service cost and the interest cost and decreasing it by the expected benefits for the coming year. The expected plan assets, on the other hand, can be determined by increasing the plan assets by the expected return and the payments and decreasing them by the expected pension payments.

At the end of next year, the DBO and the plan assets will be recalculated. The changes compared to the estimated values ​​can result from special effects (changes in the commitment, sale of businesses, mass layoffs) and may have to be shown immediately in the balance sheet. In any case, there will be changes because the premises did not materialize as assumed in the previous year. These effects result in actuarial gains or losses, which are treated differently in the various standards.

According to IAS 19 , actuarial gains or losses can be offset using three methods:

  • Carry forward within the framework of a so-called corridor amounting to 10% of the DBO (or the plan assets, if these are larger): If the corridor is left, the excess amount is distributed over the average remaining working lives of the active employees and is recognized in profit or loss from the following year onwards repaid. A smaller corridor and faster offsetting are permitted.
  • Immediate net income.
  • Immediate offsetting with no effect on income: The profits or losses are booked directly against equity.

According to the new version of IAS 19 published on June 16, 2011, the first two methods will be abolished and actuarial gains and losses will in future be posted directly to equity.

According to ASC 715 , actuarial gains or losses must first be posted in full against equity, but these must later be taken into account in partial installments affecting income ("recycling").

According to FRS 102 , profits and losses can also only be booked directly against equity, but recycling does not take place as with IAS 19.


  • Friederike Hablizel: Pension obligations in accounting according to IFRS . Verlag Peter Lang, Frankfurt 2016, ISBN 3-63166-631-4 .

Individual evidence

  1. ^ Thomas Hagemann: Pension provisions . Karlsruhe 2012, p. 5.
  2. ^ Thomas Hagemann: Pension provisions . Karlsruhe 2012, p. 279.
  3. IAS 1.7
  4. General information on financing through provisions: Jochen Drukarczyk: Financing: an introduction . 2008, p. 385 ff.
  5. Thomas Hagemann, Pension Provisions . Karlsruhe 2012, p. 11 f.
  6. Bundesbank interest rate statistics