Pension Provision

Pension provisions arise mainly from direct commitments (Pensionszusagen). They are a long-term obligation and, in owner-led DACH companies, often have no matching assets behind them: they are underfunded. For valuation, underfunded pension provisions are treated as debt-like: they reduce equity value through the Net Debt bridge. A provision of 1.5 million euros on the balance sheet, with no cover, acts as an extra 1.5 million euros of debt. Direct commitments to managing directors are often negotiated; buyers look at the discount rate, the mortality tables and whether the promise can be moved out. A commitment that has already been externalised (Unterstützungskasse, a reinsurance policy) is much easier to handle in a sale.