Germany’s largest companies listed on the DAX have seen their pension liabilities decrease by 28.6% in the second quarter of this year to €294.5bn, according to the latest German Pension Finance Watch published by WTW.
Pension liabilities fell as a result of interest rate hikes by central banks, which are reacting to the current high level of inflation, and due to an increase of the discount rate by 222bps in the second quarter of this year, compared with the end of 2021, WTW explained.
“In the last 20 years there has never been a rise of the discount rate of more than 200 basis points in six months. Such a high degree of funding is also new,” said Hanne Borst, head of actuarial consulting at WTW.
The funding ratio of pension plans of DAX companies reached an all-time high of 86%, up 13.7% compared with 72.3% recorded at the end of last year.
Pension assets, set aside by DAX companies to pay pension obligations, fell instead by 15.1% in the second quarter of this year to €253.4bn, from €287.7bn in Q1 this year and €298.3bn at the end of 2021, because of high volatility in capital markets, according to WTW.
German companies will continue to face high volatility in capital markets, although the discount rate will hold most of the growth it has achieved in the first half of 2022 and also in the second half of this year, it added.
Moreover, several German companies that have traditionally amassed a large amount of pension assets may now find themselves in a situation where the assets set aside for pension payments exceed the amount of pension liabilities.
“Currently, the pension plans of individual companies could even be overfunded. Companies should keep this in mind. In view of volatile capital markets and geopolitical uncertainties, however, it would be premature to take action now,” according to Johannes Heiniz, head of general consulting at WTW.
MDAX follows same path
The funding ratios and pension liabilities of the companies listed on the MDAX, the 50 largest companies by market capitalisation below the DAX stocks, have followed the same trajectory seen for the largest German firms.
The funding ratio of MDAX pension plans grew by 12.4% in the second quarter of this year to 77.5%, from 65.1% at the end of last year and 69.9% in Q1 this year, the figures published by WTW show.
Pension assets instead fell by 15% in Q2 2022 to €44.6bn, from €52.5bn at the end of last year and €50.8bn in the first quarter of this year.