BaFin urges providers to ‘protest’ against ultra-low interest rates

Written by Nick Reeve

01/11/2019

Germany’s financial regulator has urged major asset owners to protest against the European Central Bank’s (ECB) ultra-low interest rate policy.

Speaking at an event in Bonn, Germany, BaFin’s executive director Frank Grund said: “It has reached a point where market participants should make it very clear how bad low interest rates are now jeopardising their business model and thus their contribution to funded pensions.”

According to German newspaper Handelsblatt, Grund said he had previously told pension providers and insurers not to complain but to accept the situation. This has resulted in lower rates available to customers.

He said BaFin was closely monitoring 15 life insurers and 31 pension funds amid concerns that they might not be able to fulfil the promises made to customers on a 15-year time horizon.

“The situation of life insurers and pension funds in these years requires us to strengthen our control,” said Grund.

He added that BaFin was “committed to the protection of the policyholders and beneficiaries”.

The ECB’s marginal lending facility for the eurozone has been below 1 per cent since 2013. It has been set at 0.25 per cent since March 2016.

Meanwhile, the bank’s deposit facility interest rate was cut to zero in 2013 and has been in negative territory since June 2014. In September it was cut by 10 basis points to -0.5 per cent.

The low rates, coupled with falling bond yields, has put huge pressure on pension funds across Europe.

German pension funds and insurance companies have seen their solvency levels come under pressure in this environment, while in the Netherlands, a growing number of schemes face having to reduce payments to pensioners in order to improve their funding levels as interest rates have driven liability valuations higher.

(This was first reported on sister title European Pensions)

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