Pension reserve

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The concept of the pension reserve was introduced in 1982 with the then newly created Section 14a of the Federal Salary Act. Its purpose is to ensure the payment of pension benefits for retired civil servants (pension recipients). With the separation of funds in a special fund , regional authorities want to provide for the foreseeable increasing pension burdens of the public budgets (also called "pension avalanche"). The pension burdens are increasing due to demographic changes and the increase in the number of pension recipients.

General

According to the current understanding, pension benefits for civil servants are to be paid from the current budget of the state. This results from the alimentation principle , according to which the employer is obliged to guarantee civil servants during active service, in the event of illness and disability, and after retirement from active service for reasons of age, an adequate livelihood commensurate with the importance and social status of his office .

The financing of the pensions of civil servants is thus regulated in a manner corresponding to the pay-as-you-go system of the statutory pension insurance : there are no reserves for pensions to be paid later. The public budgets will face high burdens from these pension obligations over the next few decades:

  • the civil servant pensions to the individual pensioner will have to be paid longer and longer because the life expectancy of the people has increased significantly and will possibly continue to increase
  • the proportion of the population of working age - and thus the main source of tax revenue for public budgets  - will decrease and
  • the absolute number of people in employment will decrease (see population aging ).

The fact that many additional jobs were created in the public sector during the reform euphoria of the 1960s and 1970s also helps to increase the pension burden . The civil servants who were newly hired at the time have been retiring since around 2010; this is placing an increasing burden on public budgets. In order to relieve the public budgets of the coming decades, the federal and state governments have started building up pension reserves and (to varying degrees) also building up so-called pension funds (see below).

According to Section 14a of the Federal Salary Act, the federal government and the federal states form pension reserves as special assets from the reduction of salary and pension adjustments. To this end, the level of salaries and pensions for civil servants and pensioners is being reduced in annual steps of 0.2% each by reducing the statutory salary adjustments for civil servants and the resulting pension adjustments in the years between 1999 and 2017. The amounts saved as a result are to be transferred to a special fund. According to the law, the funds from these special funds may only be used to finance future pension expenses.

With the Pension Amendment Act 2001, the pension entitlement acquired by civil servants with each year of service was reduced to 1.79375% of the pensionable salary, at the same time the maximum limit of civil servant pensions was reduced by 3.25% (in relation to the original salary - that in fact means a reduction in the Pensions by 4.33%) and the amount of widow's pension reduced by 5%. 50% of the resulting savings are to be transferred to the pension reserves.

The federal and state governments can issue individual regulations for their area within the framework of this general regulation.

Federal pension reserve and pension fund

The federal government has laid down the corresponding individual regulations in the Pension Reserve Act (VersRücklG). In section 1 of the law passed in 1998, the law makes provisions on the “Federal Pension Reserve” special fund. In Section 2 of the Act, which was passed later, regulations are made for the special fund “Federal Pension Fund”.

The federal pension reserve is administered by the Federal Ministry of the Interior . For this, the Ministry of the Interior uses the Bundesbank (Section 5 VersRücklG). The accumulated funds, including the income, are to be invested in tradable federal debt securities at normal market conditions. The funds saved in the “Federal Pension Reserve” special fund up to 2017 will be used over the next 15 years to gradually relieve the public budgets of pension costs (Section 7 VersRücklG).

Independent of the special fund "Federal Pension Reserve", section 2 of the law (the Bundestag passed section 2 on November 9, 2006 as an amendment to the 1998 "Federal Pension Reserve Act") included the "Federal Pension Fund" special fund. set up. This special fund serves to finance the pension expenses for civil servants, judges and professional soldiers whose service or employment relationship was established from 2007. The funds of this fund can also be invested in shares within the framework of passive, index-oriented management up to a maximum of 10 percent of the fund . Contributions from the budgets of the public employers are regularly transferred to the special fund “Pension Fund of the Federal Government”, which are intended to cover future pension claims on the basis of actuarial calculations. The income from the investment fund strengthens the asset portfolio. The provision of federal civil servants hired from 2007 onwards is thus at least formally converted to a kind of funded procedure , even if the federal government's obligation to pay corresponding pension benefits is not limited to the resources of the relevant funds and thus obligations to pay pensions continue to extend into the general budget.

Federal Interior Minister Wolfgang Schäuble said:

“With the establishment of a pension fund, the financing of civil servants and soldiers’s pension for new hires will be converted to full funding. With the provisions now resolved for newly hired civil servants, the supply costs are allocated to the period in which the pension claims are actually justified. This creates transparency and comparability of personnel expenses. Financial burdens are no longer placed on the following generations. "

For the economic assessment, the main decisive factor is whether the corresponding pension reserves are created when the budget is otherwise balanced - in this case, it is real reserves and thus sustainable budgeting - or whether the accumulation of reserves is offset by a correspondingly higher level of public debt . In the second case, the creation of reserves does not really relieve future generations. Nonetheless, the formation of appropriate reserves would be a step towards disclosure of future burdens, even if debt levels were increased. From an economic point of view, however, in the case of pension reserves with simultaneous indebtedness, it must at least be ensured that the capital investment of the pension fund achieves an average return that corresponds to the federal loan financing costs.

Another effect of the new regulation is that the pension costs are now budgetarily allocated to the department to which the staff is allocated. In the past, personnel costs for the armed forces, for example , were booked in the defense budget . The costs of pensions for former soldiers were not  borne by the budget of the Ministry of Defense ( Section 14), but, like the pension benefits of all other former federal officials and judges, were allocated to Section 33 (Supply).

The new regulation will mean that pension costs can be allocated to the respective departments or the individual plans of the household.

At the end of 2018, the net position (equity) of the federal pension fund (federal share) was around EUR 4.6 billion, the net position of the federal pension reserve (federal share) was around EUR 12.9 billion.

Pension reserves of the federal states

The individual federal states have created their own laws to regulate the pension reserve, which differ only in individual points - especially in terms of investment policy.

Baden-Württemberg

The special funds are to be invested with a view to security and income. Up to 50 percent can be invested in shares. At the end of 2017, the market value of the pension reserve and the pension fund totaled EUR 6.53 billion, with an equity ratio of 41.2%.

Bavaria

The investment fund should be invested according to the criteria of the greatest possible security and profitability. Up to 35 percent are invested in shares. Of this, the EURO STOXX 50 and the DAX each account for 33%, a further 27% for the MSCI World and the remaining 7% for the MDAX .

Between 2008 and 2012, a flat rate of 500 euros per month flowed from the state budget into the “Bavarian Pension Fund” for every newly hired civil servant. Since 2013, 110 million euros have been paid in annually. At the end of 2018, the fund's market value was around EUR 2.79 billion. Since the first payment in 1999 until the end of 2018, around 1.94 billion euros were deposited and a net return of 0.85 billion euros was achieved. This corresponds to an average interest rate of 4.26% per year.

Berlin

The investment fund may be invested in bonds issued by the federal government or the federal states or comparable debtors. Up to 15% of the funds could be invested in shares until 2017. In 2017, the permitted equity quota was increased to 25%. The Deutsche Bundesbank ensures that investments in companies whose business model runs counter to the goals of climate neutrality are avoided. At the end of 2018, the investment fund had a market value of around EUR 1.0 billion with an equity ratio of 19%.

Brandenburg

Investment of assets in federal or state bonds or comparable papers. The Landeszentralbank Berlin-Brandenburg was entrusted with the installation. In 2013, the fund came under criticism because dubious investments were made in the crisis country of Cyprus and the Cayman Islands tax haven . The managed assets amounted to 290 million euros in 2013. At the end of 2017, the legal obligation to create a special fund ended and the pension reserve was released.

Bremen

Around 9.2 million euros were withdrawn from the special fund in 2018 and 2019. With the 2020/21 double budget, it was completely dissolved and the remaining 80 million euros were used up.

Hamburg

The Senator of Finance regulates the investment guidelines, the investment policy must comply with the guidelines of the Insurance Supervision Act. Shares are not investments. At the end of 2017, the equity of the City of Hamburg's pension fund was around EUR 659 million. The payments for 2017 amounted to around 71 million euros. As a result of a change in the law, the pension fund was dissolved at the beginning of 2018 and merged with two other funds to form the “Pensions of the Free and Hanseatic City of Hamburg” special fund. At the end of 2018, the fund's market value was around EUR 1.15 billion. In the 2018 calendar year, more money was withdrawn from the fund than was added, and withdrawals of around EUR 90 million per year have been decided for the years from 2019.

Hesse

The assets of the Fund are invested at normal market conditions in fixed-income securities, shares and shares in real estate funds. The equity quota is limited to 30%. The fund has been invested in accordance with the principles for responsible investment (UNPRI) since 2019 . In 2019, the market value of the assets was around 3.7 billion euros. Around EUR 0.99 billion of this was invested in shares, corresponding to an equity quota of around 26.7%.

Mecklenburg-Western Pomerania

Investment of the special assets is based on a long-term investment strategy based on the goals of security, liquidity and returns. You can also invest in bonds from public issuers in the Eurozone , Pfandbriefe from Euro countries and stocks from the DAX  or EURO STOXX 50 using an ETF . The payment phase that expired by law at the end of 2017 was extended to the end of 2022. The funds from the pension reserve are to be paid out from 2023. At the end of 2018, the market value of the pension reserve was around EUR 153 million and the market value of the pension fund was around EUR 340 million.

Lower Saxony

Investment of the funds of the special fund in promissory note loans or in tradable bonds of the states and the federal government and the member states of the European Economic and Monetary Union. A change in the law made it possible to use the funds from the pension reserve as early as 2009. Since 2010, no more additions have been made to the pension reserve. At the end of 2017, the market value of the pension reserve was around EUR 531 million.

North Rhine-Westphalia

The state (like the federal government) set up a pension reserve in 1999, which should gradually support pension expenditure from 2018. In addition, the state's pension fund had existed since January 2006, to which 500 euros per month were added for each newly hired civil servant and judge. The investment funds were invested by the Ministry of Finance at customary market conditions, for example in debentures and bonds from the state of North Rhine-Westphalia, other federal states, the federal government and the EU states.

At the end of 2016, the assets of the pension reserve and the pension fund were completely transferred to the “Pension Fund of the State of North Rhine-Westphalia”. The payments until then amounted to around 8.4 billion euros. This corresponds to an average annual payment of over 460 million euros since 1999. From 2018 onwards, 200 million euros should be added to the pension fund annually.

Rhineland-Palatinate

An institution under public law founded for this purpose with its registered office in Koblenz used the funds of the special fund to acquire bonds from the State of Rhineland-Palatinate at market conditions. Rhineland-Palatinate was the only federal state that paid such actuarially calculated monthly pension reserves (between 27.7 and 38.8% of salary) for every newly hired civil servant and judge into the pension fund since 1996 in order to ensure their later pension. The pension fund was dissolved in mid-December 2017 in accordance with the state parliament resolution. The accumulated assets of around 5.65 billion euros flowed back into the general budget, which reduced the state's debt from around 38 billion euros to around 33 billion euros. The so-called Kanther reserve, which at the beginning of 2017 comprised around 467 million euros, was retained .

Saarland

Administration by the Ministry for the Ministry of Finance and Europe in borrower's notes of the country on market terms.

Saxony

Investment of the funds in bonds or promissory notes of the Free State of Saxony, unless otherwise stipulated in the investment guidelines.

Saxony-Anhalt

Investment in tradable bonds of the federal states and the federal government at customary market conditions.

Schleswig-Holstein

Investment of the funds in tradable bonds of the state Schleswig-Holstein, other federal states, the federal government and states of the EU monetary union.

Thuringia

The special fund is administered under the name "Thuringian Pension Fund" by the Ministry of Finance in Erfurt in a secure  manner ( § 1807 BGB).

See also

Web links

Individual evidence

  1. ↑ Federal government decides to set up a pension fund in the federal government: provisions secure the financing of old-age pensions for new hires and ensure more intergenerational equity. German Federal Government, 2006, archived from the original on September 28, 2007 ; accessed on May 2, 2016 .
  2. ^ Federal budget 2006 - Section 33. (No longer available online.) In: Bundesfinanzministerium.de. June 30, 2006, archived from the original on January 23, 2013 ; Retrieved July 6, 2010 .
  3. ↑ Federal Financial Statements 2018. Federal Ministry of Finance, June 10, 2019, accessed on January 28, 2020 .
  4. ↑ Short summary of pension reserves 2017. In: fm.baden-wuerttemberg.de. Retrieved January 29, 2020 .
  5. ↑ a b Bavarian Pension Fund, Annual Report 2018. (pdf) In: www.verkuendung-bayern.de. May 23, 2019, accessed January 28, 2020 .
  6. ↑ Law on the formation of pension reserves in the Free State of Bavaria (BayVersRücklG) of December 11, 2012 (GVBl. P. 613) BayRS 2032-0-F (Art. 1–21). In: www.gesetze-bayern.de. Retrieved January 28, 2020 .
  7. ↑ State of Berlin increases the proportion of shares in its pension reserve. In: www.berlin.de. August 1, 2017, accessed January 29, 2020 .
  8. ↑ Central investment. In: www.berlin.de. May 21, 2019, accessed January 29, 2020 .
  9. ↑ Assets. In: www.berlin.de. May 21, 2019, accessed January 29, 2020 .
  10. ↑ Pension fund: Brandenburg speculated with Cyprus bonds. In: deutsche-wirtschafts-nachrichten.de. March 23, 2013, accessed January 30, 2020 .
  11. ↑ Alexander Fröhlich: Brandenburg's risky financial transactions. Potzdamer Latest News, March 22, 2013, accessed January 30, 2020 .
  12. ↑ Law on the repeal of the Brandenburg Pension Reserve Act and amending other regulations. In: bravors.brandenburg.de. December 20, 2016, accessed January 30, 2020 .
  13. ↑ Circular No. 1/2018. Brandenburg municipal supply association, February 14, 2018, accessed on January 30, 2020 .
  14. ↑ The pension reserve is to be completely dissolved in the 2020/2021 double budget. In: dbb-bremen.de. October 20, 2019, accessed January 30, 2020 .
  15. ↑ a b Annual financial statements and management report for the 2017 financial year. Ebner Stolz GmbH und Co. KG (auditing company), accessed on February 21, 2019 .
  16. ↑ Annual financial statements and management report for the 2018 financial year. In: www.hamburg.de. March 29, 2019, accessed January 30, 2020 .
  17. ↑ Hessen joins the "Principles for Responsible Investing" (UN PRI) initiative. Hessian Ministry for Economic Affairs, Energy, Transport and Housing, June 7, 2019, accessed on January 30, 2020 .
  18. ↑ Printed matter 6/3931. In: dokumentation.landtag-mv.de. July 9, 2015, accessed January 30, 2020 .
  19. ^ Draft of a law on the adjustment of salaries and pensions for civil servants in 2018. In: www.landtag-mv.de. October 25, 2017, accessed January 30, 2020 .
  20. ^ Draft budget 2020/21 section 11. In: www.regierung-mv.de. Accessed January 30, 2020 .
  21. ^ Lower Saxony state pension reserve . Nds. Treasury Department, May 27, 2013, accessed January 31, 2020 .
  22. ^ Landesjustizportal - Document: OVG Lüneburg 5th Senate - 5 LC 13/13 - judgment - pension reserve for civil servants. In: Rechtssprechung.niedersachsen.de. December 13, 2013, accessed January 31, 2020 .
  23. ↑ accounts of the state of Lower Saxony 2017. (pdf) In: mf.niedersachsen.de. Accessed January 31, 2020 .
  24. ↑ Excerpt from the 2020 budget. (PDF) In: haushalt.fm.nrw.de. Retrieved August 28, 2020 .
  25. ^ Ministry of Finance Rhineland-Palatinate: State law to abolish the pension fund passed. Retrieved January 26, 2019 .
  26. ↑ a b Ministry of Finance Rhineland-Palatinate: Ahnen: “Consistent reorganization of pension funds and PLP”. Retrieved January 26, 2019 .