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Mercer warns of funding issues at German blue-chip pension schemes

GERMANY - Underfunding in German blue-chip companies’ pension plans is set to widen by €40bn due to the effects of low interest rates, Mercer has found.

According to the consultancy’s research, DAX30 companies on average have 24% in equities and 62% in bonds, from which a 5% return was generated this year as at the end of September.

Mercer Germany, expressing similar concerns to those raised earlier this year by Towers Watson, said the return from the companies’ equity exposure was “not enough to compensate the increase in liabilities”.

The consultancy expects the funding level of DAX30 pension plans to decrease from 66% at the end of last year to just 58% at the end of this year.

Liabilities, which currently amount to more than €220bn, could increase by another €50bn, while the value of plan assets is set to rise by just €10bn, Mercer Germany said.

Thomas Hageman, chief actuary at the consultancy, said: “If the market conditions are not improving, we expect liabilities in the year-end accounts to reach a new record level.”

Mercer Germany said the funding hole could widen to as much as €115bn in total, an increase of more than €40bn.

Stefan Oecking, partner at Mercer Germany, added: “Over the short term, little can be done against the underfunding, but more and more companies are implementing asset allocation strategies linked to the development of liabilities, and this trend will increase given the current market environment.”

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