As the name suggests, the technical interest rate is a purely calculative figure. The technical interest rate is used to add interest on the capital that is set aside to cover the annual retirement pensions.
And now step by step: Until retirement, the retirement assets in your pension fund will yield more or less high interest. The interest is credited to your retirement assets annually. At the time of retirement, the retirement assets (including interest and compound interest) are converted into an annual pension. The capital is then gradually paid off, which brings us to the crucial question: How high is the return that the pension fund can continue to earn on the capital? This interest is no longer credited to your retirement assets. You will now receive a lifelong pension, the amount of which was determined at the time of retirement. The interest income is now a source of income for the pension fund.
If the return earned on the remaining capital is high, the pension fund can finance the pension payment for an extended period. A high technical interest rate has a positive effect on the coverage ratio of a pension fund.
The technical interest rate should reflect the expected return. However, there is an incentive to use the highest possible technical interest rate, since, as mentioned above, a high interest rate increases the coverage ratio and the coverage ratio of a pension fund is often used as a measure to assess the solvency of a pension fund.