RÄG 2014 – Financial Mathematical Calculation of Severance and Anniversary Pay Provisions for UGB Financial Statements

The Accounting Law Amendment Act 2014 (RÄG 2014), which was resolved on 11.12.2014 and is to be applied for the first time in 2016, leads to Changes in the assessment of severance and jubilee pay provisions. provisions for termination and jubilee payments according to the wording of the law from 2016 to be calculated using actuarial methods. AFRAC Opinion 27 elaborates on this legal provision and states the following regarding the parameters to be applied.

• Nominal interest rateIt is the Market interest rate for highly rated corporate bonds to be used, which match the average remaining term of the severance or jubilee payment obligation and the currency in which the benefits are to be paid. Broadly speaking, a remaining term of fifteen years can be assumed., provided there are no significant objections in individual cases. It can either the current benchmark interest rate or the average interest rate of the last five to ten years steadily is expected to be set. According to the Deutsche Bundesbank, the ten-year average interest rate was most recently 4.08% and, given the ongoing period of low interest rates, is expected to continue to sink. The interest rate on the reference date is currently (dependinggkeit von (remaining term) within the range of 1.43% to 1.95%.
• Salary trendThe nominal interest rate is contrasted with the so-called wage trend. Future salary increases due to typical career progression at the outset of determining the provisions to consider. Exceptional career developments are not to be taken into account.
• Collection methodThere is a Choice between dem part value method and the applicable under IAS 19 Current single premium process. The right to vote is to apply constantly.
• Probability assumptionsFluctuation, mortality and invalidity probabilities are to be applied, provided that reliable statistical bases are available. However, in many cases, a company-specific, representative basis for the best possible estimation of mortality and invalidity probabilities will not be available.

Sea AFRAC Statement 27 Can the calculation of provisions for severance and anniversary payments in practice also deviate from the wording of the law in the future Simplifying through a financial mathematical calculation succeed, if these to a reliable approximation to the actuarial value leads. Provided that the applied financial mathematical procedures the depicted Requirements among other things with regard to interest rate, salary trend and accumulation procedure corresponds to, will one as a general rule from one reliable approximation can be based on an actuarially determined provision. A actuarial calculation or. Control account the accruals for severance and anniversary pay can then refrain.

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