German pension arrangements are funded to a greater extent than previously reckoned, according to findings of a survey among major groups, carried out by Buck Heismann and Goldman Sachs. Assets available could be as high as DM600- 700bn ($335-391bn) and perhaps as much as 60% of pension libailities are covered, says Michael McShee of Buck Consultants in Geneva.

When you count up all the sources of the pensions assets including Pensionskasse, Unterstütsungskasse, di-rect insurance and book reserves, you could reach a figure of 60%,” he says. Since corporates are free to fund or not, the survey found that German employers show a much greater propensity to fund externally than US employers have with a similar freedom to provide for post-retirement employee medical benefits. Looking at the extent to which pensions liabilities are used, to finance purchase of business assets, the survey points out that German corporates can get their capital anywhere in the world and they do not need their pension liabilities as a source of business finance.If an Anglo Saxon type fund was available to them, most German businesses would use this.

Overall German business feels they are at a competitive disadvantage compared to other international busineeses, says McShee. But some enterprises have developed close approximations to pension funds. The investment approach of the companies, the survey finds, is that they “exhibit a high propensity for investment risk” in pursuit of returns on pensions allocated assets. In particular, Pensionskassen strategies are tending to get to the maximum permitted levels of equity and international exposure.

Another indicator of this is a strong belief in active specialist management, as evidenced by the use of performance fees in investment contracts. Business is averse to the traditional approach on investment costs in the market with low nominal management fees and custody costs subsidised by the dealing revenues on transactions. “Transparency of in-vestment costs is of major importance,” says McShee.

Looking at the fiscal inhibitions, the survey says these do not directly in-hibit external funding, since the rules are “practically neutral” for company owned assets held for pension liabilities. A number of mainly foreign- owned multinationals had managed to mould the different pensions ap-proaches to “deliver a very close eq-uivalent to a US style, off balance sheet, tax effective pensions fund”.

The employers involved in the study had some DM80bn in pensions assets, about 17% of all complementary pension provision in German companies.”