What is the significance of a pension fund's guaranteed minimum interest rate?

The guaranteed minimum interest rate plays a key role in occupational retirement provision. It is a central parameter in the calculation of future pension fund benefits.

From the time of a person's retirement, pension funds pay out monthly pensions from the retirement assets saved by the insured. The portion of the retirement assets that has not yet been disbursed remains invested in the financial markets. The assumed rate of return yielded by these assets is known as the guaranteed minimum interest rate.
The higher the guaranteed minimum interest rate is set, the more capital can theoretically be converted into pension payments. The guaranteed minimum interest rate must not be set too high, because the associated higher returns also involve increased investment risk. If the expected return on assets cannot be achieved, pension funds must resort to using investment income for pension payments, although this should really be due to the active insured. The system of occupational retirement provision is not intended to redistribute investment income from the active insured to retirees.

In order to minimize this unintended redistribution from the working generation to retirees, the Vita Collective Foundations have adjusted the guaranteed minimum interest rate a number of times in recent years. A lower guaranteed minimum interest rate provides additional flexibility to make more profitable investments. Consequently, higher returns can be generated on the pension capital to the benefit of the insured.