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Dutch, German companies taking good care of UK pension funds – study

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  • Frankfurt, Germany

UK defined benefit (DB) pension funds with sponsors based in Germany and the Netherlands are significantly better funded than the average for the UK’s largest listed companies, new research has shown.

The research, conducted by consultants Barnett Waddingham, looked at the funding for DB schemes in FTSE 350 firms, picking out the 33 with German or Dutch sponsors.

It showed that five of the 14 Dutch schemes ran accounting surpluses, a relative anomaly for FTSE 350 schemes in recent years, with an average funding level of 96%.

This is a full 9 percentage points higher than the FTSE 350 average.

Nine of the 19 German schemes also ran surpluses, with the average funding level 11 percentage points higher than the average, reaching 98%.

However, the research also showed some of the companies operating with a high indirect exposure to equities.

Some of the DB schemes forced their sponsors’ exposure to equity volatility to breach 100% of s‎hareholder value.

This was the case for three German companies, and two based in the Netherlands.

As a result, fluctuations in the valuation of scheme equity holdings could have a larger impact on the sponsor’s balance sheet than its own commercial activities.

The German firms also pay significantly above the average in deficit contributions compared with a company’s profit.

Parent firms listed on the DAX put in an average of 1.7% of revenues to tackle scheme deficits, which Barnett Waddingham said would see them removed within five years.

This compares with 0.9% for Dutch employers, which would require a further three years to see deficits gone, against an average contribution of 1.1% for FTSE 350 firms overall.

Malcolm Rochowski, consultant at Barnett Waddingham, and who led the research, said that while the schemes were run in the same manner, a better funding level was certainly prevalent.

“What is surprising, even though the funding levels are above average, it did not translate into a reduced contribution pattern,” he said.

“This could be cultural, given the Netherlands’ requirement for schemes to be fully funded, so the firm feels compelled to contribute when funding levels drop below 100%.”

The Continental countries also outperformed the FTSE average with regards to contributions to pension schemes, as a percentage of staff costs.

With an average of 7.7%, the FTSE 350 fell well below the 15% seen by German parents and 13% by the Dutch.

However, in both situations, Barnett Waddingham highlighted the variance among individual firms, with contributions starting at below 5%, and rising to 40% for German companies and 35% for Dutch firms.

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