8. July 2020

Inference

The facts presented under Clarification of Control on the legal scope of the consulting practice presented make it clear that the “main business” in the context of a consulting process for a direct pension commitment to a shareholder managing director or shareholder board cannot lie in the brokerage of a reinsurance product.

However, this is precisely what financial services and sales organisations too often ignore – based on practical experience. The attention is mainly on the switching of the own products, the formal requirements degenerate to the ancillary business. Thus often reinsurance products are selected, which are neither suitable, nor correspond to the investment and investor mentality of the entrepreneurs and/or pension beneficiaries concerned. Always used with pleasure: Reinsurance with participation models. In addition to his participation in his own company, there is then suddenly a foreign participation whose entrepreneurial risks can often hardly be assessed by the person concerned. In principle the admixtures from participation plants for the reinsurance of direct pension commitments are not to be condemned, however an exclusive reinsurance in this plant form should be critically questioned and be tuned explicitly to the individual case.

It should also be borne in mind that a direct pension commitment to the aforementioned group of persons is first and foremost a purely civil law pension promise by the company making the commitment. This means that there is no obligation to repay or finance a pension commitment in terms of capital. Occasionally, there are companies which, due to their excellent earnings situation and the resulting cash flow, do not finance the pension commitment. The pension benefit from the pension commitment is then paid from the start of the pension simply as a “retirement pension” by the employer as the pension provider. However, this is not the rule in practice and will not become the rule from our point of view. This is because small and medium-sized enterprises in particular are dependent on a reinsurance investment that is tailored to the obligation arising from a pension commitment because they cannot risk generating pension benefits from current profits. Otherwise, financial overload or even the insolvency of the company would be seen as a latent threat.

For the consultant in charge, it becomes clear that product sales cannot be the main starting point for pension commitment consulting, regardless of whether it is a question of setting up a new company or repairing or restructuring a pension commitment to the aforementioned group of people:

Approximately 80% of this civil law pension promise initially focuses exclusively on legal advisory services. Financial and tax advisors should therefore make sure that the pension commitment is legally secure. If the provider is an authorised legal service provider who explicitly assumes liability, there is sufficient security. Otherwise, unavoidable liability risks for the executing consultants arise from the point of view of unlawful legal advice.

Every new establishment or restructuring of a pension commitment therefore requires a legal, tax and business appraisal, which should always be based on an expert opinion so that all aspects can be clarified in advance by an authorised legal service provider in a liability-safe manner.

In this context, Kenston Pension Ltd assumes these tasks as your authorized legal service provider.