Pensionskassen are required to establish a volatility reserve to balance investment profits and losses as well as technical risks. The reserve thus acts as a buffer to ensure that the investment income expected will be achieved.
Below you will find information about:
The volatility reserve is a distinct component of the assets of an investment and risk-sharing group that is managed separately from the other assets. It is used to balance fluctuating investment and technical income, thus smoothing out the effect. Beneficiaries (recipients) should be able to count on balanced pension benefits.
The share of the interest that exceeds the technical surplus is allocated to the volatility reserve. The technical surplus is based on the investment and risk sharing group’s business plan and represents the average expected investment income. The employer may allocate specific contributions to the volatility reserve in order to provide additional security with regard to meeting their pension benefit obligations.
If the technical surplus is exceeded in an investment year, the amount exceeding the investment income will be allocated to the volatility reserve.
In those years where the percentage for the technical surplus is not achieved, the shortfall is withdrawn from the volatility reserve.
The volatility reserve’s target value should be determined by the Pensionskasse’s management board. With regard to the amount of the volatility reserve, the threshold values laid down in the Pensionskassen Act (PKG; Pensionskassengesetz) must be met.
At the end of 2014 the volatility reserve was around 7% of the premium reserve.
The volatility reserve may be managed:
- individually – individual beneficiaries are managed separately; or
- jointly – groups of beneficiaries are managed together.