Pension liabilities of the largest German firms listed on the DAX index rose by 4% in 2020, according to consultancy Aon.

The aggregate amount of pension obligations, however, shrank from €416bn in 2019 to €408bn in 2020 by taking into account €25bn of Lufthansa’s liabilities, it added.

The German airline company had to leave the DAX index following the collapse of its stock price last summer as a result of the impact of the COVID-19 pandemic on the aviation industry. Lufthansa is now listed on MDAX.

The discount rate for DAX 30 companies fell further last year to 0.77% from 1.10% in 2019, ranging from 1.3% at Adidas and 0.4% at carmaker Daimler, which led in turn to an increase in pension liabilities.

The amount of assets to cover pension claims rose slightly less than the liabilities at 3%, Aon said.

The development varied depending on the company, with Munich Re recording an above-average performance (9%), and others seeing coverage assets falling, for example real estate company Vonovia at -5%.

“It is clear that the right investment strategy of a company is becoming increasingly important – some companies have some catching up to do,” Aon Germany’s chief executive officer Fred Marchlewski said.

André Geilenkothen, partner and member of the management board at Aon, added: “There isn’t a silver bullet. An overview of the structure of the obligations and a capital investment are essential [for the development of coverage assets].”

DAX companies assumed pensions would progress approximately 1.6% last year, compared with 1.63% in 2019, and salaries 2.62% compared with 2.69% the prior year.

Fred Marchlewski at Aon

Fred Marchlewski

The slight decrease is the consequence of a lower estimate on the inflation rate, Aon said. Companies also assumed that severe salary cuts in 2020 were only short-term measures.

DAX 40

According to Aon’s analysis, occupational pension schemes also remain an option for those companies joining the DAX 40. The index will in fact expand to 40 companies from the current 30 from September.

Among the candidates to join the DAX 40, only online retailing firm Zalando mentioned employer-financed old age provisions in its annual report, Aon said.

“In general, the DAX 30 companies and also the candidates for the DAX 40 are strongly positioned with regard to company pensions,” Marchlewski said, adding that in the long-term the COVID-19 crisis will only have a minor impact.

Overall, company pension schemes at the largest German corporations showed stability during the pandemic, avoiding a deterioration of pension promises or liquidation of pension plans.

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