GERMANY - Listed companies in Germany will set aside even more money for pension assets this year, continuing a trend towards "more manageable" retirement provision, according to Towers Watson.
Thomas Jasper, head of retirement solutions at Towers Watson Germany, told IPE that companies, notwithstanding the financial crisis, had put aside money "continuously" for their pension funds in recent years.
"We saw a lot more money going into pension plans last year than we did in 2010," he said.
He said many German companies had set up either CTAs or Pensionsfonds in recent years, and that they had committed more resources to pension fund asset management and risk management.
He added that the switch from defined benefit arrangements to "German-style defined contribution", with its legally required minimum guarantees, had encouraged the alignment of asset and liability management.
But Alfred Gohdes, head of actuarial consulting at Towers Watson Germany, pointed out that German companies were not seeking to achieve full funding for their pension funds.
He said companies preferred the flexibility of the German system, where they were not obliged to fully fund their pension liabilities in segregated and "effectively restricted" funds.
However, Gohdes added that companies had seen the benefits of setting aside more money for their pension schemes to make payouts more manageable in the long term.
Like its rival Mercer, Towers Watson calculated a stable funding level for the pension funds for the 30 largest companies in the German stock exchange index (DAX), at around 65%.
In addition to a 3% actual return on plan assets, the €9.4bn paid by companies into their pension plans helped offset an increase in liabilities caused by interest cost and a 15 basis point drop in average discount rates, Towers Watson said.
With respect to asset allocation, Jasper noted that company schemes had reduced their equity exposure "well in time", while at the same time putting in place hedging strategies.
On average, DAX pension plans had around 21% in equities at year-end 2011, compared with 30% in 2007 before the crisis.
Gohdes added that the 3% return achieved in 2011 was well above the benchmark return of 1%, which Towers Watson had calculated at the beginning of last year based on the average asset allocation at the time.
Given the performance, Gohdes said companies estimating expected returns at 5% was "about right" in the long term, as company pension plans had much more exposure to return-seeking asset classes such as equities, alternatives and real estate than, say, German insurers.