How important is the technical interest rate of a pension fund?

How important is the technical interest rate of a pension fund?

For the payment of monthly pensions, pension funds draw on the accumulated assets of the insured, while the portion not yet paid out continues to be invested in the markets. The expected return on these assets is referred to as the technical interest rate. The higher it is set, the more capital can theoretically be annuitized.

However, the technical interest rate should not be set too high. Because if the expected returns cannot be achieved, pension funds must draw on the assets of the active insured to pay out pensions. The technical interest rate is therefore also an indicator of the robustness of a pension fund: The lower it is set, the more secure the pensions are financed. This means that a higher equity ratio can be selected when investing pension assets, which in turn increases the potential return for the active insured.

In order to keep the unwanted redistribution as low as possible, the Vita Joint Foundations have lowered the technical interest rate several times in recent years. With Vita Classic, it is currently 1.5%, with Vita Invest 0%. A low technical interest rate provides additional flexibility to invest in investments with better returns. This generates higher returns on the pension capital, which are paid out to pensioners as a bonus pension. 

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