The shifting discount rate for listed German companies’ pension funds over the first nine months of the year has increased liabilities by as much as 14%, according to Towers Watson.
While the Rechnungszins rate dropped to 1.47% in the first quarter, it later increased to 2.4% before dropping again to 2.3% at the end of September.
Towers Watson estimated that the shifting rate had led to a 14% increase in liabilities to date for companies listed on the DAX and the MDAX for mid-cap companies.
As of the end of the third quarter, pension liabilities stood at €424.9bn for the DAX and €69.9bn for the MDAX, the consultancy said.
It added: “The low interest rate set by the European Central Bank has had a massive impact on the pension liabilities of German companies.”
It said this was true for listed companies applying IFRS and non-listed companies applying the German accounting standard HGB, as reported previously by IPE.
For listed companies, capital markets are unlikely to be much help in offsetting rising liabilities this year
As of end-September, Towers Watson’s model portfolios for the DAX and the MDAX only returned 0.4% year to date despite a strong start to the year, with a more than 5% return reported in Q1.
Further, the consultancy noted an increase in “conservative securities” at corporate pension funds, as “the risk perception of German pension providers is changing”.
However, due to additional buffers and payments to pension plans by German companies, the overall funding level increased by 300 basis points to just over 68% for DAX plans.
For MDAX companies, which tend to put less aside for their pension plans, the funding level increased by 270bps over the first nine months to just under 55%.
For more on how ‘financial repression’ has affected pension funds, see CREATE-Research’s study in IPE’s December edition