Impact of solvency on customer rebates
By following certain rules, pension insurance companies can grant their customers discounts on pension contributions. The possibility of granting a discount depends on the solvency of the pension insurance company. This discount, given in arrears, is called the customer rebate. Company pension funds and industry-wide pension funds, for their part, have the option to grant discounts on pension contributions, also depending on solvency.
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Customer rebates of pension insurance companies
Pension providers may distribute part of their solvency capital funds as customer rebates if the company’s solvency so permits.
Until 2022, it was also possible to distribute expense loading surpluses as customer rebates if the pension provider was sufficiently solvent. An expense loading surplus was generated if the pension provider’s operating expenses were lower than the funds gathered to cover them as part of the pension contribution.
From 2023, expense loading surpluses are not generated at such levels, as each pension provider sets its expense loading component, which is intended to cover its operating expenses, independently. This makes it easier for pension providers to accurately set the component to match their actual operating expenses. Thus, customer rebates which accrue from 2023 on consist solely of pension providers’ solvency capital funds.
If the pension insurance company’s solvency capital falls below the solvency limit set for it, the company may not distribute customer rebates at all.
If the pension insurance company’s solvency capital exceeds the solvency limit, rebates can be distributed according to actuarial principles so that they are at most 1.0 per cent of the solvency capital amount plus the management cost surplus. An expense loading surplus may be added to customer rebates paid for 2022.
The maximum solvency capital for pension insurance companies is three times the solvency limit. However, the maximum shall be no less than 40 per cent of the technical provisions minus the provision for future bonuses. If the pension insurance company’s solvency capital exceeds the maximum amount set for it in two consecutive years, the company must use the sum exceeding the maximum amount for customer rebates. A surplus is not distributed all at once. First the company distributes one third of the amount by which the solvency capital exceeds its maximum.
Rebates, or discounts on contributions, granted by company pension funds and industry-wide pension funds
Company pension funds and industry-wide pension funds can use their provision for current and future bonuses to reduce the contribution. The provision for current and future bonuses can be used to reduce the contribution until the solvency capital is not less than 1.3 times the solvency limit. Thereafter, the provision for current and future bonuses can still be used to reduce contributions by a sum that equals 1.0 per cent of the solvency capital without the item based on the employer’s obligation to pay an additional contribution.
If the solvency capital of a company pension fund or an industry-wide pension fund falls below the solvency limit, the provision for current and future bonuses may not be used to reduce the contribution. The provision for current and future bonuses can then be accrued by contributions. If the solvency capital exceeds its maximum (= three times the solvency limit), more of the provision for current and future bonuses must be used to reduce the contribution.
A company pension fund or an industry-wide pension fund can also use contributions to accrue its provision for current and future bonuses up to the maximum amount of the solvency capital.