Social security funds lose over 600 million euros due to negative interest rates
Kleinmachnow, 21 April 2022 – German social insurance institutions are suffering heavily from negative interest rates. Penal interest has had to be paid on investments of more than 200 billion euros in recent years, more than 600 million euros in total. Money that the funds could well use in view of their financial situation. “But regulation often prevents them from switching to investments that are less problematic or even provide positive returns,” says EDS founder and CEO Sebastian Bergmann.
Since 2014, the European Central Bank has charged money if short-term investments are held with it. “Pension funds in particular are suffering from this,” says Bergmann. “But also the health insurance funds, the long-term care insurance and others have to pay on top.” One reason: social insurance funds are required by law to invest in low-risk investments. The Deutsche Rentenversicherung Bund, for example, must invest its sustainability reserve provided for by law, which cushions any fluctuations in the pension fund’s contribution income over the course of the year, in “readily available” investments.
“Readily available means that a financial cushion of up to 38 billion euros is invested largely in the form of time deposits and other near-money market investment products that comply with supervisory requirements and have a maximum term of twelve months,” says Bergmann. From this alone, penalty interest of over 540 million euros has become due in recent years. Then there are the health insurance funds, for which similar regulations apply. “Basically, these are all institutions that are subject to the Social Code,” says Bergmann.
The health fund of the statutory health insurers has paid around 24 million euros in penalty interest since 2017, and individual large health insurers are even higher. For example, the AOK alone incurred nine million euros in penalty interest in 2018, Barmer around three million in 2019, Techniker around 1.5 million in 2020 and IKK around 1.2 million in 2021. “All of this is money that is being taken out of the social system,” says Peter Hoffmann, Co-Founder and CTO at EDS. And the health insurance companies in particular, which have been severely shaken by Corona and where all lines of business except for the agricultural health insurance made heavy losses, could put the money to good use in other ways.
“A turnaround is not yet in sight here for this year either,” says Hoffmann. Even if interest rates are rising – this will only reach institutional investors with a long delay. “At best, we will see steps towards the zero line in the coming months,” says Hoffmann. “Many financial institutions want to expand their own margins first now.” So for social security institutions, the penalty interest rates could reach much higher sums.