GERMANY - The top 30 companies in the DAX, Germany's stock exchange index, have seen their pension deficit decline by €16bn to €90bn because of market appreciation, according to the consultancy, Mercer.

"The funding hole will be a fair bit smaller in 2006," Raimund Rhiel, chief actuary at Mercer told Financial Times Deutschland. "The funding deficit has decreased from €106bn at the end of 2005 to €90bn at year-end 2006." He added that the deficit might be even smaller depending on whether some companies made extra contributions to their pension funds.

Thomas Jasper, chief executive officer at Rauser Towers Perrin, said that a combination of increase in interest rates and slightly higher inflation expectations led to the positive market developments.

Other consultants stressed that the positive returns came almost exclusively from equities and alternative asset classes. "Some pension fund deficits remain unaltered as the allocation to equities was only 15 to 20%. The gains from this part of the portfolio were eaten up by the negative returns from bonds," explained Uwe Rieken, partner at Faros Consulting.

According to Towers Perrin, DAX companies allocated 41% to equities on average.