GERMANY - The pension schemes of companies listed on the German stock exchange index Dax remain well-funded over the long-term despite suffering a combined loss of €13bn last year, consulting firm Mercer has found.
Developments reported for plan assets in 2008 show the returns stretched from -36.7% for the Deutsche Börse scheme to +5.2% for Deutsche Telekom, and these were dependent, to a large extent, on the risk taken in the schemes' investment strategies.
That said, over three and five-year periods most pension plans remain positive, noted Herwig Kinzler, head of investment consulting at Mercer Germany which looked at the year-end accounts of DAX companies.
Kinzler stressed there was no legal requirement for German companies to fully fund their pension plans but said it was "good praxis" now for most DAX and medium-sized companies to have a CTA, a pension fund or an insurance-based solution in place - or up to all three of those options.
This means the actual funding levels in among DAX companies ranged from just 0.3% for steel producer Salzgitter, to 16% for Deutsche Telekom and over 100% for the Deutsche Bank.
Mercer separated the companies into three categories according to how much risk they were taking in their investments.
"Looking at the companies over the last year, some which have put in place a more aggressive strategy, not surprisingly, have suffered considerable losses similar to equity funds," explained Kinzler.
"But over the five-year period all but one - the Deutsche Börse - are positive and have seen cumulative returns of between 6% to over 30%."
The majority of the 30 companies' pension funds were found to be at the top end of this bracket.
Steel Producer ThyssenKrupp (+35.3% with a high-risk profile) and the Deutsche Bank (+33.9% with a low-risk profile) are among the companies with the best-performing plan assets over the long-term while the Deutsche Börse is still in the red over the 5-year period with negative returns of 22.7%.
Kinzler suggested the five-year period could only be treated as a sample, as the pension plans tend to be managed for 30-year periods and more.
He stressed, in this study, Mercer was only looking at the published annual reports and not using any more client-specific information on asset allocation or managers of the plan assets.
Mercer noted it produce to give a certain guideline as to how DAX companies' plan assets were doing over the short and medium-term.
Kinzler noted liability-driven investments were considered to be one solution which might help to minimise the impact in 2008 on the plan asset portfolios.
"Some companies are already getting back into equities and some are using convertibles to get exposure to a bit of equity risk but not the full risk," he added.
He also suggested the crisis has slowed down the process of building assets to fund pensions, as companies have taken contribution holidays while smaller companies are postponing plans to outsource pensions.
"But the trend towards financing pensions via a CTA continues," added Kinzler.
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