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Funding falls as German pension schemes struggle with low interest rates

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Funding at some of Germany’s largest pension funds has fallen by as much as 4 percentage points over the first half of 2014, as schemes continue to struggle with the low interest rate environment.

Consultancy Towers Watson estimated that pension funds for companies within the DAX index saw coverage fall to 61.3% as of the end of June, down 4 percentage points compared with 2013.

The funds of the 50 companies within the MDAX saw a similar decline, down by more than 3 percentage points to just 48.1%.

Head of retirement solutions Thomas Jasper said the decline was due to the falling discount rate, now at an average of 3.07% compared with 3,65% at the end of 2014.

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“Fluctuations in the funding ratio are normal and, in light of the long-term nature of occupational pension provision, should not be a reason for concern.”

According to the consultancy’s German Pension Finance Watch, the fall in the average discount rate also resulted in an 11.1% increase in liabilities to €336.8bn among the 30 DAX companies, compared with €206.6bn in assets – up by 4.3% over the first half of the year.

The growth in assets was largely due to an overall asset return of 5.5%, attributed to growth in European and global equity holdings.

Fixed income holdings returned 6%, with only real estate portfolios making a loss (-0.8%).

The trend was mirrored across MDAX firms, where liabilities rose by 11.2%, while assets under management increased by 4.1% to €27bn.

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