Meaning of Pension Provisions 2

  • The company’s liabilities increase, company profits are reduced, and as a result, income tax decreases. On closer inspection, however, it is initially only a tax deferral. If entitlement arises, part of the pension reserves must be released and paid out to the beneficiary. In the short term, this increases corporate profits and income tax is due.


There are only a few practical and useful guidelines in the Commercial Code for evaluating pension provisions in the balance sheet . Paragraph 1 only lists “the amount of the settlement amount necessary according to a reasonable commercial assessment”. For employees who have left the company and who no longer provide any consideration in the company, the present value of the obligation is to be used. However, possible regulations for active employees are not mentioned at all.

For the reasons given, as well as due to the uncertainty about the timing and the amount of the obligations,
actuarial calculation models are used to measure pension provisions. Both statistical quantities and probabilities can be included in these calculations. This enables the present value of the pension repayments to be ascertained at the time of the calculation, which then provides the basis for the tax and commercial balance sheets. Methodically, one uses the means of discounting or discounting. The so-called Heubeck mortality tables, which were developed in 1947 by the Cologne actuary Georg Heubeck, are customary and also recognized by the tax authorities.

A law that is of great importance for the accounting of pension provisions is the “Law for the Modernization of Accounting Law” (Accounting Law Modernization Act, BilMoG) of 2009. This resulted in some significant changes in accounting in the tax and commercial balance sheets: So must Future entitlements and pension increases are included in the calculation of the valuation – there is no longer a uniform valuation, but the so-called settlement amount for the tax and commercial balance sheet is determined.

Deferred taxes

Another important point when preparing the balance sheet are the so-called “deferred taxes”. They arise from the fact that there are differences in the calculation of the taxes to be paid. The tax expense that results from the profit calculated from the commercial balance sheet is referred to as the “notional tax expense”. The “effective tax expense” – that is, the tax portion that actually has to be paid – results from the tax balance sheet.

In other words: there may be differences between commercial and tax profits or losses of a company. The reason for this is the different accounting regulations for the two accounting methods. To compensate for these differences, the construct of deferred taxes is used. That means in detail:

  • If the difference is positive, i.e. if the profit in the commercial balance sheet before taxes is higher than that in the tax balance sheet, deferred tax liabilities arise. This creates a tax disadvantage.
  • If the difference is negative, i.e. if the profit in the commercial balance sheet is lower than in the tax balance sheet, deferred tax assets arise: There is a tax advantage.


In addition to “deferred taxes”, there are other special cases in accounting. You can find out what accounting obligations there are and what you have to consider in our lexicon!

Discounting for the tax balance

The discounting for the tax balance can be simplified by assuming a 15-year term, for the discount rate § 6a EStG is relevant: “When calculating the partial value of the pension obligation, an interest rate of 6 percent and the recognized actuarial rules are to be applied . ”

Discounting for the trade balance

Section 253 of the German Commercial Code (HGB) is to be used for discounting for the commercial balance sheet. It reads: “Provisions with a remaining term of more than one year are to be discounted at the average market interest rate for the past seven financial years that corresponds to their remaining term.” The currently applicable interest rate is set monthly by the Deutsche Bundesbank and can be viewed on its website.


A release of pension provisions requires a specific reason from a tax and commercial law perspective; it must not be made without cause. This will most often be the case when an entitlement arises, for example when an employee retires: Then a partial dissolution takes place from the transfer of the first pension. In any case, the pension reserve must be released in the event of the death of an employee.

In principle, the following applies : The entire pension provision can only be released if the reason for the provision no longer exists.

As a managing director, you can insure yourself against risks that arise in connection with the formation of provisions for pensions by taking out reinsurance.

Pension Provisions 2