Companies on Germany’s DAX stock exchange made around €10bn in pension-fund contributions in 2015, roughly the same amount they set aside in 2014.

According to research by Willis Towers Watson (WTW), car-maker Daimler made the largest contribution at €1.9bn, increasing its funding level by 1200 basis points to 71%, while Energy giant RWE set aside €1.6bn, raising its funding level by 800 bps to 77%.

Thomas Jasper, head of retirement solutions at WTW Germany, told IPE: “This shows German companies are faring well enough to be able to set aside more than €10bn towards their pension plans.”

DAX companies’ average funding level increased by around 400bps last year to 65%, its second-highest level recorded after it reached 71% just before the financial crisis in 2007. 

As projected in WTW’s ‘German Pension Finance Watch’ for February, capital-market gains and an increase in the discount rate calculated under IAS19 helped improve funding levels at corporate schemes. 

It said the contributions made by companies, however, were of significance given that, under German law, pension obligations do not need to be fully funded, but rather can be based on on-book cashflow projections.

This is possible because the insolvency protection is not based on full funding but on contributions to the  Pensions-Sicherungs-Verein pension protection fund.

At Mercer Germany, chief actuary Thomas Hagemann also pointed out that “German companies are free to decide whether to create pension assets, and, within the DAX, we can find the full spectrum – from full funding to not accruing plan assets at all.”

He said the DAX average-funding rate was therefore a bit misleading, as Deutsche Bank, for example, has a 101% funding level, while real estate company Vonovia’s is 4%.

But, according to WTW’s Jasper, German companies have “various incentives” to continue to increase funding.

“One of them is aligning the pension liabilities with the pension assets, as it is difficult to have an LDI strategy when the assets are bound in machinery and office infrastructure,” he said.

He also argued that capital-market “overreactions”, particularly in the wake of the financial crisis, could push some companies further towards funding.

“Most analysts and rating agencies, meanwhile, have grasped the difference between Germany and the rest of the world in pension-plan funding levels.

“But, at a first glance, a higher funding level still looks better.”

Both consultancies agree there is a greater need for German companies in general to make themselves attractive as employers via good pension offerings.

At Mercer, Hagemann pointed out that companies would have to come up with “creative solutions and good ways to communicate risks in the pension plans to their employees to be able to win and hold specialists”.