German pensions 'comparatively sound' – WWH
GERMANY - Funding levels in the pension schemes of large German companies are expected to have dropped five percentage points year-on-year between 2007 and 2008, according to Alfred Gohdes, director of Watson Wyatt Heissmann.
In an exclusive preview of the consultant’s annual review of DAX 30 companies’ retirement provision, Gohdes said German pensions were “solidly financed”.
So far, two-thirds of the companies have released their 2008 annual reports and, judging from those, funding levels have dropped from 70% at year-end 2007 to 65% over the year, according to the consultancy.
Those pension arrangements include pensionskassen, pensionsfonds, CTAs but also unfunded retirement schemes which are never fully matching liabilities.
However, Gohdes admitted “occupational pension provision did have tailwind” last year as a rise actuarial interest rates from around 5.5% to 6% meant liabilities were falling. (See also earlier IPE article: German pension vehicles to diversify - Mercer)
“But in total we can see that compared to pension plans elsewhere German companies have funded their pension provisions well,” pointed out Gohdes.
He noted occupational pension plans in the UK, for example, saw their funding levels drop from 95% to 75%.
Gohdes admitted the asset allocation of German pension plans was not fully efficient in times where markets were climbing but appeared perfect during times of crisis.
“We saw that the concentration on LDI led to a low equity exposure, which helped as did the rise of implementing governance structures in companies,” said Gohdes.
Although Gohdes does “not see panic among” occupational pension schemes in light of the moderate losses suffered in 2008, he is convinced that “all principles will come under scrutiny” this year, including asset allocation, active management approaches and much more.
The full study of the DAX 30’s pension arrangements is scheduled to be published in April.
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