GERMANY - The average funding ratio for the pension schemes of firms traded on Germany's Dax-30 equity index improved to almost 60% on June 30, according to a new study by consultant Rauser Towers Perrin.

Elsewhere today, rival Mercer has said that German companies are carrying greater pension risk (see separate story).

RTP said the improvement in the funding ratio for Dax-30 pension schemes was mainly due to rising interest rates. Rising interest rates diminishes the amount of core capital firms need to meet their pension obligations.

RTP also said that by the end of 2006, the average funding ratio for the schemes would show another improvement. It did not cite a figure, however.

"The authors of the study expect that the positive developments regarding the funding of pension plans will be reflected in the firms' results for the full year. This assumes further increases in interest rates and a stabilisation of equity markets," the consultant said.

However, RTP said that in the second quarter, the schemes' funding ratio declined slightly (-0.3%) amid the equity market correction and the fall in bond prices caused by rising interest rates.

Around two-thirds of Dax companies have created external funds known as contractual trust arrangements (CTAs) to meet their pension obligations. The remainder of the group still relies on the traditional method of paying pensions with balance sheet assets.

Under international accounting standards, which are being adopted by all Dax firms, pension liabilities met by balance sheet assets are generally treated as unfunded.

Last April, a separate RTP study found that the Dax companies had around 40% of their pension assets invested in equities in 2005 - virtually unchanged from the year before. The firms' average bond allocation in 2005 was 44.5%, down from 46.7% in 2004.

Meanwhile, the average allocation to real estate and alternative asset classes - including private equity and hedge funds - rose to 5.9% from 4.1%, and to 8.1% from 6.4%, respectively.