Pension assets for German listed companies posted an average return of 9.3% in 2016, according to Willis Towers Watson.
This was up significantly from the 0.9% gain reported in 2015, and also above the expected return, as Willis Towers Watson noted in its analysis of 25 out of 30 annual reports of companies listed in the German DAX index.
In total, plan assets increased by €22bn, bringing total assets to €249bn. Only €6.6bn had been forecasted.
This increase also includes €10.5bn in additional payments by some companies into their pension plans.
This activity helped keep the average funding level among the analysed companies at 63%, only slightly down from 65% in the previous year – confirming earlier findings by consultancy Mercer, as reported by IPE.
Heinke Conrads, director of actuarial consulting at Willis Towers Watson, said it was significant that the average funding level had remained above 60% since the financial crisis.
“This can be seen as a signal that it is important for companies to keep a certain funding level,” she said.
Last year, the average discount rate dropped further to 1.8%, bringing pension liabilities up to €396bn. This compared to €362bn in 2015.
“If we had higher interest rates the funding level would be well over 63%,” said Thomas Jasper, head of retirement at Willis Towers Watson.
He added: “It also has to be understood that these analysis are only snapshots of a certain point in time, while pension plans have a long-term horizon.”
Jasper emphasised that by German standards most of the DAX companies’ liabilities were fully funded because they were covered by on-book reserves as well as funded plan assets.
According to Jasper, the DAX companies have worked on their portfolios over the last few years which meant 2016’s gains were not only down to luck.
“Over [recent] years the companies have professionalised their asset management, especially when it comes to risk management,” Jasper explained.
Willis Towers Watson also noted a considerable decrease in the bond exposure in portfolios over the last few years, continuously dropping from 63% to 51% since 2009.
The share of “other” investments – including cash, alternatives, and real estate – increased from 9% to 23% over the same period.
“This categorisation of assets is used in the annual reports but in reality companies are thinking more along the lines of return-seeking and matching assets – and most of the alternatives fall under the first category,” Jasper said.
Willis Towers Watson also presented the results of a survey of companies’ views of Germany’s pension reform plan, the Betriebsrentenstärkungsgesetz (BRSG).
Although the planned opting-out or auto enrolment feature would probably only be applicable to companies that have signed a collective bargaining agreement, Jasper was convinced it would have an impact.
He said: “The idea will spread and there are already companies that have introduced similar concepts even under the current legal framework. The BRSG will facilitate this development.”
Conrads added that 23% would “want to alter their occupational pension arrangements once the BRSG takes effect”.
“We see the incentives in the BRSG as a good starting point that also companies without a pension plan will introduce one,” she said.