Hessen pension fund in crisis: Are there a threat of massive pension cuts?

Hessen pension fund in crisis: Are there a threat of massive pension cuts?

The Hessian Medical Association's pension scheme has come under criticism due to massive financial losses. The plant has reportedly lost millions, largely due to bad investments in the real estate market. The expected returns from guaranteed real estate financing in the past have not materialized, which is now leading to serious financial challenges. Further extraordinary write-downs are also expected for 2024, which could further aggravate the situation. Nord24 reports that pension funds that do not receive state support act in the same way as statutory pension insurance.

A central feature of these pension funds is that members' contributions are used directly for pension payments. Long-term investments are also part of the financial strategy. In contrast to statutory pension insurance, however, there are no guarantees, which is why members have to expect benefits to be reduced in the event of financial losses. This has been particularly evident in the current situation, where market uncertainties could have a serious impact on pension payments.

Market situation and risks

The problems on the real estate market and the associated risks have already been addressed by the pension fund's chairman. In 2023, the pension fund ended with a negative result for the second time in its history, a first setback since 2008. This year, the number of active members rose from 36,506 in 2022 to 37,650. This means that more pensions have to be paid out, which further exacerbates the financial challenges for the pension funds. Mercury added that not all pensioners have statutory pension insurance; many use pension funds for retirement provision.

The risks of these financial strategies have now become the focus of public discussion. Investors in pension schemes, especially in professional professions such as doctors, are facing uncertain times. The income from membership fees is used directly for pension payments, while a significant proportion is invested in stocks and real estate, which has led to bad speculation in the past.

Impact on pensions

The situation has an impact on the amount of pension payments. Members of pension schemes generally receive higher pensions than the average statutory pension insurance, which is partly due to their higher income. However, pension increases are rare; they are usually between zero and one percent per year. Adjustments to pensions are determined by the statutes of the respective pension funds, which means that in many cases pensioners remain behind inflation.

The financial structure of the pension funds provides for a return of 2-3 percent, which is necessary to finance pensions. Given current market developments, members are now concerned about whether pension benefits will be permanently secured. Sooner or later, benefit cuts could well become a reality, which represents an uncertain and worrying development for many retirees.