The funding ratios of the pension schemes of Germany’s largest firms listed on the DAX have reached a new record high of 83% in 2024, exceeding the highest level on record of 80% recorded in 2022, according to the annual figures published by Mercer.
Pension assets of DAX companies increased last year by €6bn year-on-year to €264bn, still far below the peak of almost €300bn recorded at the end of 2021, while pension liabilities fell to €320bn last year, from €324bn in 2023, Mercer figures show.
According to the consultancy, the historically high funding ratios of the last three years confirm a trend towards solid funding of pension obligations in Germany.
“In 2024, companies continued to look for solutions to manage their pension risks, relieve their balance sheets from pressures, and stabilise liquidity outflows,” said André Geilenkothen, head of pension funding consulting at Mercer Germany, adding that many companies opt for the Pensionsfonds vehicle to transfer their pension obligations.
Companies can continue to de-risk pensions in a challenging macroeconomic environment, by gradually opting for funding through asset classes promising higher returns, or by reallocating investments when the level of funding is already high, he added.
The discount rate remained close to the previous year’s level in 2024, or increased slightly, a relief for pension liabilities, and the opposite of what happened with corporate pension schemes in Switzerland hit by a falling discount rate.
“The discount rate has increased by an average of around 15 basis points compared to the previous year. That explains the stable values of pension obligations [for DAX companies in Germany]”, said Thomas Hagemann, chief actuary at Mercer Germany.
Pension payouts were higher than the new contributions in 2024, resulting in an outflow of funds of around €5bn. Returns on pension assets stood at around €15bn, or almost 6% last year, Mercer said.
“2024 was a positive year for capital markets. In this environment, it was crucial to take advantage of the positive market value developments without losing sight of the goal of de-risking, hedging the risks of the obligations,” added Jeffrey Dissmann, head of investments at Mercer Germany.
This year Mercer expects moderate returns on equity markets, and that central banks will cut interest rates, but slightly less than currently priced in, putting considerable pressure on yields.
“The challenge for pension investors is to anticipate these decisions and prepare for different scenarios. The aim should be to maintain and gradually increase the high level of funding ratios achieved in recent years,” Dissmann said, adding that smart investing that reduces short-term balance sheet volatility but continues to capture long-term opportunities “is the key here”.
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