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German DB losses lessened by bond rates

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GERMANY - German companies saw their pension plans' assets decline considerably over the last year but a rise in interest rates in the last quarter also helped reduce liabilities, according to a study by consultancy Rauser Towers Perrin (RTP).

Funding levels in the pension plans of Dax-listed companies, the German stock exchange, and its mid-cap version MDAX dropped to 64% and 48% respectively last year, a decline of around seven and eight percentage points.

The benchmark plans used in RTP's "German Capital Market Update Report" were 38%-invested in equities while 62% of this was held in European equities for the DAX plans.

A closer analysis of MDAX plans found they had a benchmark portfolio of 28% to European equity, 18% to global equity.

"The companies have to face theoretical losses of more than €20bn," RTP noted in a statement, acknowledging this was the first time in four years funding levels had declined. (See earlier IPE story: German mid-caps could fully fund pensions by 2011)

That said, the blow of further asset losses in the last quarter of 2008 was softened a bit by a rise in interest rates cutting companies' liabilities.

RTP estimated liabilities dropped by around 10% by the end of last year thanks to falling inflation forecasts and rising calculation rates, which have increased 40bp since the beginning of last year until they reached their all-year high in the third quarter.

Thomas Jasper, principal at RTP, added funding reserves have diminished in the course of the crisis as companies are in need of liquidity.

Meanwhile, the IMF pointed out in its latest consultation on Germany "low exposure of the pension system to capital market developments" in the country had allowed Germany to expand employment and real disposable income to the end of 2008 while this was one factor which has "triggered and reinforced the crisis" in other regions.  

An annual survey by the German Postbank showed retirement provision still remains a taboo issue in many German families.

In total, 60% of all Germans above the age of 16 "hardly ever" talk about this issue among their friends and families compared to 58% a year ago with people fearing a pension gap in the future talking even less about it.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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