​Aon recommends halt in US investments as capital shifts to safer havens

Aon is recommending German corporate pension funds to refrain from making new investments in the US, and carefully rebalance allocations as capital moves to safer havens.

Volatility on the equity markets, particularly in the US, continues, and it is likely to result in capital shifts to safe havens such as Europe and Japan, and possibly Canada and Australia, the consultancy wrote in a blog (published in German) to highlight the impact of capital market turbulences on occupational pensions in Germany.

Companies offering funded pension promises are exposed to volatility caused by unpredictable political decisions, and threats of punitive tariffs, Aon said.  

The sharp devaluation of the US dollar and losses on the equity markets hit assets set aside for occupational pensions in Germany, Aon added. 

The consultancy anticipates that many investors – especially in China and Japan – will sell US bonds. 

This, in turn, will push up US interest rates and the risk premium for the US as a debtor – currently comparable to the level of Italy and Greece – which is likely to be followed by a depreciation of the US dollar, it added. 

Aon suggests that German corporate schemes should consider hedging currency risks against the US dollar if possible. In the event of rising interest rates, pension investors should buy opportunistically, extend duration, and rely on matching strategies, it added. 

Solid 2024 

Last year, pension liabilities of the DAX pension funds fell by 2%, compared with 2023, to €325bn, according to Aon’s annual report on DAX pension plans published yesterday. 

Volkswagen tops the ranking as the company with the highest amount of liabilities, at €45.5bn, followed by Siemens with €28.7bn, and Allianz with €22.3bn, Aon’s figures show.  

Aon also found that funding ratios of the corporate schemes increased by 3% year-on-year in 2023 to 81%.

Commerzbank ended 2024 with the healthiest funding ratio among the DAX companies, at 111%, up from 109% in 2023, followed by Deutsche Bank with 107%, up two percentage points year-on-year, and Mercedes-Benz Group with 104%, figures show. 

The amount of assets reserved to secure pension obligations rose in the same period by 3%, from €260bn to €264bn, Aon reported.

Its report added that Siemens has set aside close to €30bn assets to pay liabilities, the largest amount among DAX firms, followed by Mercedes-Benz with €22.55bn, and BASF with 21.4bn.

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