GERMANY – Deutsche Asset Management expects that the German market for contractural trust arrangements (CTAs) – vehicles that permit companies to finance their pension liabilities off-balance sheet – to total at least €15bn in 2006.
DeAM’s market estimate for CTAs follows recent announcements by German multinationals that they had chosen the vehicle for their pension liabilities, which are currently funded via book reserves.
These firms include the media company Bertelsmann, the engineering group MAN, the energy giant E.ON, the chemical giant BASF and the consumer chemicals firm Henkel.
Of the CTAs planned, those from E.ON and BASF are the biggest in terms of volume, with a respective €5bn and €3.7bn in pension liabilities to be funded.
The switch to CTAs has been driven by international accounting standards, which tend to regard pension liabilities funded by book reserves as unfunded. As they require a great deal of liquidity, CTAs are more common among multinationals instead of small to midsize companies.
DeAM’s parent Deutsche Bank was one of the first multi-nationals to set up a CTA for €5bn in pension liabilities. Apart from the €5bn managed on behalf of Deutsche’s CTA, DeAM said it ran another €2.5bn for CTAs set up by other DAX companies and small firms.
With the emergence of another €15bn for CTAs, Nikolaus Schmidt-Narischkin, head of corporate pensions at DeAM, told IPE that the asset manager was already bidding for investment mandates or had been awarded some. He declined to elaborate.
Schmidt-Narischkin also noted that the other main driver of growth in the German pension industry next year would be overtime accounts.
The accounts permit employees to save the monetary equivalent of overtime hours, unused holiday, cash bonuses or a portion of salary to help finance retirement. The savings are tax-deferred.
“Overtime accounts will see rapid growth in the foreseeable future. That’s because employers and unions in nearly every industry have agreed to introduce them,” he said. As examples, he cited the chemical, engineering, automobile and banking sectors.
Regarding DeAM’s business with overtime accounts, Schmidt-Narischkin said the asset manager had already won mandates from four DAX companies and a dozen more from small firms.
Inflows from these mandates totalled €150m in 2005, but DeAM expects the volume for 2006 to be considerably higher.