The pension funds of companies listed on Germany’s DAX stock exchange are more than 65% funded, an increase of 5 percentage points compared with the end of 2014, according to estimates by Willis Towers Watson.

The consultancy’s ‘German Pension Finance Watch’ calculated an overall average return of 1.7% over the period and a nearly 50-basis-point drop in liabilities.

Looking at the pension liabilities of German listed companies based on model portfolios and annual reports, Willis Towers Watson found that the average discount rate, or Rechnungszins, increased from 2.15% at end-December 2014 to just over 2.3% a year later.

For its calculations, the consultancy employed the median discount rate published by the listed companies, determined according to international accounting standards.

A slight rise in the discount rate reduced liabilities in DAX companies by almost 5%, or €18bn, to approximately €354.2bn.

In 2014, however, the companies suffered a liability increase of nearly 300 basis points.

Positive returns came mainly from European and global equities, with each segment producing an average 10% return and both jointly accounting for one-quarter of Willis Towers Watson’s model portfolio.

REITS, representing just under 5% of the model portfolio, returned more than 18%.

Willis Towers Watson said most institutional investors were investing in closed-end funds or holding real estate directly, adding that details on the real estate portfolios were not disclosed in the annual reports.

Thomas Jasper, head of retirement solutions at Willis Towers Watson, said: “Over the short term, plan assets can be expected to be more correlated to equities, but, over the long term, there will be more correlation to alternative asset classes.”

He said the improvement in interest rates and, in turn, the increase in discount rates were “a positive sign for occupational pensions”.

He noted, however, that small and medium-size companies using the HGB discount rate, based on a historical average, were still facing another decrease in the rate, as pre-crisis years were falling out of the average.

The German government has now decided to increase the calculation period for the average from seven to 10 years.

For more on the discount rate under the HGB accounting standard, see the April issue of IPE magazine