GERMANY - The average funding level of pension plans
at Germany's top 30 largest companies jumped to 70% in 2007 while segregated pension assets leapt to €150bn, according to a study conducted by Watson Wyatt Heissmann.

The consulting firm undertook analysis of year-end results for 29 companies listed on the Dax 30 index to discover Dax 30 companies benefited from approximately €17bn in actuarial gains in 2007thanks to their worldwide pensions arrangements, while accrued actuarial liabilities decreased in nominal terms to €215bn in 2007, compared with €230bn in 2006.

Perhaps more importantly, firms including E.ON, MAN, RWE and Deutsche Lufthansa made significant cash injections into their schemes of €11bn, to boost the ratio of aggregated plan assets to accrued actuarial liabilities from 47% in 2004 to 70%, or €150bn, in 2007.

Deutsche Bank and BASF were found to have fully-funded pensions of segregated assets, reaching 108% and 101% respectively,  but many German companies have yet to move towards what Watson Wyatt Heissmann describes as "US and UK-style funding", as they instead choose to maintain book reserves within the company's collated assets.

A further four companies are within 10% of being fully-funded, according to the research, as Hypo Real Estate ha pension fund liabilities of 96%, while MAN and Siemens both reached 94% and Linde's funding level grew to 93%.

Deutsche Telekom, by contrast, showed it had a funding level of just 16% on its pension liabilities, followed by 22% for Volkswagen, 24% for ThyssenKrupp and 27% for Deutsche Postbank.

However,  Alfred Gohdes, managing director of Watson Wyatt Heissmann, pointed out to IPE this does not necessarily mean companies are having difficulty financing their pensions because German schemes are still in the process of moving assets into contractual trust arrangements (CTAs) rather than maintaining book reserves.

"These other funds are not close to bankruptcy but have financed their operations differently. These figures also include post-retirement health benefits, which compared with other countries, are considered to be part of a pension," said Gohdes.

"But the study shows the funding levels are being interpreted as US or UK-style segregated assets in relation to accrued liabilities. To a large extent, this is because of the positive development in the [eurozone] discount rate and also because large corporations have been injecting large amounts into the funds. It would normally be held in cash or cash-equivalent, but companies are actually deciding to put it into pensions."

He continued: "The change in thinking has been gradual. Shell was one of the first high-profile companies to inject money into a contractual trust arrangement (CTA). But we will continue to see a rise in funding levels in Germany as RWE, E.ON, MAN and Deutsche Lufthansa will all continue to see cash injections into funding."

Actuarial gains were in part improved by an adjustment to the euro-denominated discount rate as it increased from an all-time low of 4.2% in 2005 and 4.5% in 2006 to 5.5% in 2007.

That said, analysing German companies' balance sheets is now much tougher, noted Gohdes, as all but two of the Dax 30 firms reported their results in accordance with IFRS in 2007, compared with three in four firms in 2006.

Understanding the true pensions liabilities is therefore very difficult, he also suggested, because there are three amortisation rules a company can apply to their financial results, yet it is often not disclosed what impact this has had on their balance sheet.

"IFRS regulations have significantly reduced transparency. The US GAAP requirements meant on reading a US GAAP balance sheet, one could fund the numbers one was looking for a lot quicker because of standardisation. But IFRS does not seem to be as prescriptive, even for technically-versed people working in pensions," said Gohdes.

Elsewhere within the balance sheet, Watson Wyatt Heissmann found preliminary - though unconfirmed - data indicated the average equity allocation within pensions assets was lower in 2007 at around 30% compared with the previous year, while interest in alternatives is "on the increase but from a very low base" Gohdes added.

SAP results have yet to be analysed by WWH as SAP does not publish its financial statements until this month (April). The quality of information in the financial statements analaysed was in some cases "non standard and, in part, oblique", however, the financial statements the of Allianz, Deutsche Boerse and Deutsche Telekom were described by the consulting firm as examples of clarity.

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