Information obligations of pension funds under the EbAV II Act

The draft regulation on information requirements has been published

The EbAV II Implementation Act) extends the pension fund's obligation to provide information to the beneficiaries under insurance law. The Federal Ministry of Finance has now published the draft of the Ordinance on the Specification of Information Obligations.

1. Introduction

Less than three months after the EbAV II Act came into force, the Federal Ministry of Finance (BMF) took a first step towards implementing its legislative mandate according to Sec. 235a of the German Insurance Supervision Act (VAG) and published a draft of the Ordinance on Information Obligations in the Field of Occupational Pensions (Draft Regulation).

The Draft Regulation concretizes the legal requirements for the information obligations according to Sec. 234k to 234p VAG (cf the Deloitte Pensions Experts Client Alert for an initial classification of these regulations) with regard to the content (especially the actuarial information subject to publication requirements), the form and the frequency of publication. Selected aspects of the Draft Regulation are examined below.

2. Formal requirements

The Draft Regulation defines the formal requirements somewhat misleadingly in § 2: In general, the pension fund should make the information available in paper form or electronically (§ 2 (1) Draft Regulation). Beneficiaries shall be entitled to receive information in paper form (Sec. 2 (2) Draft Regulation). If the information is not provided in text form, the Pension Fund shall ensure that the information is easily accessible to members and beneficiaries on a permanent basis (§ 2 (3) Draft Regulation).

In legal terms, the following should apply: The requirement of electronic availability does not include the electronic form in accordance with to Sec. 126a BGB; the storage and personal display of the relevant information on a suitable electronic platform (e.g. web portal, app) should be sufficient. The paper form does not include the written form according to Sec. 126 BGB; here the permanent visualization of the information in a paper document might be sufficient, which fulfils the form requirement of the text form (Sec. 126b BGB).

Pension funds that administer pension commitments via an electronic platform (app, web portal), which is accessible for the individual pension beneficiary, will therefore be able to integrate the information into the platform.

3. Substance

The Draft Regulation specifies the content of the general provisions on the information obligations pursuant to Sec. 234l of the Insurance Supervision Act (in Sec. 3 of the Draft Regulation) and the special information obligations towards members pursuant to Sec. 234o of the Insurance Supervision Act (in Sec. 4 and 8 of the Draft Regulation).

It is noticeable that the Draft Regulation does not specify in more detail the content of the indeterminate legal terms to be listed in Sec. 234k VAG for the general formal requirements on information duties (cf. our Deloitte Pensions Experts Client Alert: When is a presentation concise? Which linguistic requirements are to be met in terms of comprehensibility or even reader-friendliness?). Case law will have to clarify this in individual cases.

With regard to the material content, Sec. 3 and 4 of the Draft Regulation essentially contain lists which the pension fund can use as checklists for the concrete fulfilment of the information duties.

With regard to general information obligations, Sec. 3 (2) of the Draft Regulation also stipulates that in the case of pension schemes in which members bear all or part of the investment risk or can make investment decisions, information must be provided regarding the earlier development of investments in connection with the pension scheme at least over the period of the last five years since the introduction of the pension scheme. In the case of pension schemes that have not been in existence for such a long time, it is only possible to fall back on the correspondingly shorter duration. In the case of start-ups - here the authors are thinking in particular of implementing institutions in connection with the social partner model - such information is naturally not possible. The question is which meaningful indications a singular consideration of the past of a single development path can provide for the beneficiary. Possibly, it is simply the realization that developments in capital investments are volatile. However, the framework conditions of the past cannot necessarily be continued into the future. It can develop quite differently than in retrospect. The consideration of the past is therefore not quite convincing. However, it is already stipulated/established? in Art. 37 of the EbAV II Directive.

Among other things, the information for the scheme members must contain forecast calculations - i.e. no singular look back - (Sec. 8 Draft Regulation). Appropriate assumptions must be made that take into account all factors that may affect the level of benefits. For the pension starting age, the pension amount resulting from an elementary scenario must be indicated on the one hand, and a pension amount resulting from the projection of one of the two following expectation scenarios - earnings scenario or scenario for a best estimate, on the other:

  • In the elementary scenario, the guaranteed benefits are projected; no further performance data is used as a basis. If these values are not a lower limit for the benefits, i.e. there may be lower retirement benefits, this should be indicated accordingly in the pension information. 
  • A realistic estimate of future investment income must be assumed in the earnings scenario. Until now, the prospective amount of the benefits had also had to be communicated to the scheme member. If economic scenarios are used within the framework of a so-called stochastic model, it is necessary to indicate the so-called best estimate. This is the mean of the projections to the underlying different scenarios.

An unchanged contribution payment up to the pensionable age is assumed; however, already known contribution adjustments are included in the calculations. Normally, it can be assumed that the value provided by the elementary scenario is below the value from the earnings scenario or the best estimate. If this is not the case, a further projection calculation is required, which must be integrated into the pension information for the beneficiaries. The elementary scenario can also be calculated in the variant without further contribution payment. In the case of guaranteed pension systems, the beneficiary thus regularly receives information on the amount of his pension benefit already accrued.

4. Frequency

Beneficiaries shall be informed annually of the relevant information (Sec. 234o para. 1 VAG).

For pension recipients, Sec. 5 (1) Draft Regulation generally stipulates a recurring obligation to inform within a period of at least five years. Early information is required for decisions to cut benefits - even if there is a reduction in profit participation. If the beneficiaries bear a significant investment risk, they must be informed annually in particular about the structure of the investment portfolio as well as the risk potential and the costs of asset management (section 5 of the Draft Regulation). In the social partner model, these obligations are in addition to the information obligations to pension recipients laid down in Sec. 41 PFAV. The general five-year information cycle deviates from the three-year period of the review of the adjustment of pension benefits pursuant to Sec. 16 (1) BetrAVG, which pension funds have to carry out that do not use all surplus shares attributable to the pension portfolio to increase current benefits and therefore cannot claim the exemption from the regular adjustment review pursuant to Sec. 16 (3) no. 2 BetrAVG. A combined information of the individual pension recipient about the result of the adjustment audit (and the associated future amount of the pension benefits) and about the general facts in accordance with Sec. 234o VAG, which is relevant for these pension funds, is therefore only relevant if the implementing institution voluntarily decides in favour of the shorter three-year cycle also for the information requirements in accordance with Sec. 243o para. 1 VAG.

5. Conclusion and outlook

The BMF is expected to issue the regulation before the end of this year. Pension funds will then have to carefully implement the extended legal requirements on information duties in the existing documentation. This must be done in accordance with the data protection regulations. The Deloitte Pensions Experts will keep you up to date on further developments.

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