Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Own funds
4, 36, 41
1(109), 1, 1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
CRR Art 41.1.b
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
Risk-weighting of Pension Assets

Article 36 of the CRR requires that defined benefit pension fund surpluses be deducted from CET1 - unless the bank has unrestricted access to the surplus and has obtained permission from the competent authority, as Article 41 sets out further. Any such accessible surplus then needs to be risk-weighted for credit risk in accordance with Part Three of the CRR. However the CRR is silent on the risk weighting assets for total pension assets. Should pension funds in total, or just the accessible surplus, be risk weighted?

Background on the question:

Defined benefit pension liabilities can be offset against pension assets under IAS 19 of IFRS. Hence, only the difference (surplus or deficit) appears on the balance sheet. Article 4 of the CRR defines ‘defined benefit pension fund assets’ as ‘assets of a ... pension fund ... after they have been reduced by the amount of obligations ...’, i.e. it refers to pension fund surpluses. Articles 36 and 41 then deal with these surpluses. Assume, for example, a pension fund is not in a surplus position. Hence, there is no deduction from CET1. The question is whether the gross pension fund assets (equities, bonds ...) would need to be risk-weighted. CRR does not require this explicitly - but the BaFin has given guidance on this in its response to enquiry T002N003F001: Essentially, pension assets need to be risk-weighted - without netting against liabilities and irrespective of whether assets are held under trust. This results in a significant RWA charge for Banks regulated by the BaFin.

Date of submission:
Published as Final Q&A:
Final Answer:

'Defined benefit pension funds' assets' are defined in Article 4(1)(109) of Regulation (EU) No 575/2013 (CRR) as 'the assets of a defined pension fund or plan, as applicable, calculated after they have been reduced by the amount of obligations under the same fund or plan'. This definition makes clear that a net amount (i.e. net of defined benefit liabilities) has to be deducted from CET1 items pursuant to Article 36(1)(e) of the CRR.

Pursuant to Article 41(1) of the CRR, the net defined benefit pension fund assets to be deducted from CET1 items shall be reduced by the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the applicable accounting framework, and by the amount of assets in the defined pension fund which the institution has unrestricted ability to use, provided that the institution has received the prior permission of the competent authority (see further Article 15 of Commission Delegated Regulation (EU) 241/2014.

Contrary to what is assumed in the question, the risk weights are not applied to the 'surplus'  amount but rather to the amount used for reducing the amount to be deducted under Article 36(1)(e) of the CRR. This follows from the wording of the 2nd subparagraph of A          rticle 41(1) of the CRR, which states that 'those assets used to reduce the amount to be deducted shall receive a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three of the CRR'. Assets used to reduce the amount to be deducted should be risk-weighted on a pro-rata basis to reflect the overall distribution of the pension fund assets for which the institution has an unrestricted ability to use, using the risk weights that would apply if these assets were owned directly by the bank.


This answer has been modified on 21st July 2015 to correct the unintended inclusion of language that wasn't part of the formally approved EBA answer.            


Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.