Private pension provision: How insurers justify pension cuts and why consumer advocates are suing against them

Private pension provision: How insurers justify pension cuts and why consumer advocates are suing against them

According to a report from www.fr.de,
With private pension plans, it often happens that the pensions are reduced long after the contract has been concluded. Insurers are citing declining returns on the capital market. A court finds this doubtful.

The regional court in Cologne ruled that insurance companies are not allowed to subsequently adjust the pension factor in order to pay out a smaller pension later. The consumer advice center is nevertheless suing four large insurance companies. The dispute is about clauses in Riester contracts that allow insurers to reduce pensions if life expectancy increases or the return on investments falls. The Cologne Regional Court considers such a clause to be ineffective because it is not sufficiently transparent. The court argues that the average policyholder can reasonably assume that the pension factor is set at the agreed level. The consumer advice centers are seeking a decision from the highest court in this matter. They have already filed lawsuits against Axa and sent out-of-court warnings to Zurich Deutscher Herold and LPV Lebensversicherung.

A similar lawsuit brought by consumer advice centers against other clauses in Riester policies was successfully decided by the Federal Court of Justice in November. The Riester pension has long been criticized because of high fees and low interest rates, which affect returns. It is currently estimated that a fifth to a quarter of the almost 16 million Riester contracts are dormant.

The lawsuits and successes of the consumer advice centers could have a significant impact on the insurance market. Insurance companies may be forced to use more transparent and consumer-friendly contractual clauses. This could also lead to consumers having more confidence in the Riester pension and private pension provision in general. If the regulatory landscape changes and consumers experience more security and fairness in their Riester contracts, this could also lead to an increase in the signing of new contracts. This, in turn, could change the competitive landscape in the insurance market and potentially lead to new products and services.