GERMANY - German companies have much more exposure to pensions risk than firms elsewhere in Europe, according to new research from Mercer Human Resource Consulting.

Elsewhere, rival firm Rauser Towers Perrin has stated that the average funding ratio for German firms has improved (see separate story).

Mercer said pensions risk exposure in top German companies is 20% higher than in large UK and Dutch firms and three times greater than in French organisations.

It added that pension deficits represent 12% of company value in Germany compared to 4% in France, 3% in the UK and US and 2% in the Netherlands.

And it revealed that German companies contributed £3.27 for every £1 of new benefits given to employees, compared to £1.82 for French firms and £1.56 in the UK.

The analysis was designed to help investors assess pensions risk in the major European financial markets. It says a "significant proportion" of pension liabilities in German companies remain unsecured by assets, despite large-scale voluntary funding by some firms.
The combined value of pension liabilities in the biggest German-based companies (the DAX 30) is equivalent to 31% of the organisations' market capitalisation. 

This pension risk exposure is around a fifth higher than for the top UK (FTSE 100) and Dutch (AEX 25) companies, which have liabilities equating to 26% of their market capitalisation.  
"The research shows how much risk top European companies are shouldering in their pension schemes," said Mercer partner Tim Keogh.

"Pension liabilities have a large bearing on the financial structure of major German-owned companies, with UK and Dutch-based firms following shortly behind.
"Even if schemes are well secured by assets, they are still exposed to longevity risk.  If life expectancy increased by 10%, the effect on German companies would be 20% greater than on UK and Dutch firms and three times more than on French organisations."