Pension funds sponsored by DAX companies maintained high funding ratios of 87% last year, setting the stage for reassessing investment and asset management strategies amid ongoing geopolitical and market pressures.
Liabilities fell to €298bn at the end of 2025, down from €305.5bn in Q2 2024. Assets earmarked for benefits also decreased, from €266.2bn to €258bn over the same period, according to the DAX Pensionswerke 2025 study published today by WTW.
Hanne Borst, head of retirement at WTW Germany, told IPE that a significant upward shift in the discount rate last year helped relieve pension liabilities. She added that pension assets decreased despite positive market developments because payouts exceeded contributions.
DAX firms achieved a 2.2% return on pension assets through active management, navigating a challenging economic and geopolitical environment, WTW said.
“Despite a positive development of the equity markets towards the end of the year, 2025 was not outstanding, mainly for the performance of government bonds, particularly in the Eurozone,” said Nikolaus Schmidt-Narischkin, managing director of investments at WTW Germany.
Mercer calculated returns of less than 2% for DAX pension schemes, with individual asset classes lagging benchmarks and additional losses from currency positions. Using financial statements up to 13 March, Mercer revised funding ratios downwards, from 93% to 87%, still a record high.
Jeffrey Dissmann, head of investments at Mercer Germany, said geopolitical uncertainties and the rapid rise of artificial intelligence are shaping market dynamics, creating risks but also new investment opportunities, particularly amid diverging currency and sector developments.
Rethinking strategies
In response to capital market volatility, many pension funds are diversifying allocations into private markets and considering targeted hedging strategies, WTW said.
Investments with stable cash flows – high-quality corporate bonds, infrastructure loans, or long-leased real estate – provide reliable income to cover pension benefits. Current yields make these strategies particularly attractive.
Equities remain a source of potential returns despite volatility triggered by oil and gas price spikes following the war in Iran.
“Equity prices are being driven by narratives rather than fundamentals, and this is a great opportunity for active management,” Schmidt-Narischkin said.
European equities are more sensitive to energy price shocks than US markets, while emerging markets are expected to see high capital outflows. WTW anticipates two European Central Bank interest rate hikes this year, with inflation pressures from rising energy costs.
Governance, LDI and buyouts
DAX companies with strong funding ratios continue to rely on robust governance and broadly diversified allocations, particularly in private markets.
“They build their own capabilities or delegate the management of investments either fully or partially in OCIO mandates,” WTW’s Schmidt-Narischkin said.
Alongside growth, liability security remains a central focus. While liability-driven investment (LDI) strategies remain widely used, cash flow-based approaches are gaining traction.
High funding ratios also allow firms to explore strategic options such as buyouts.
“The interest in buyouts, which we consider a mega trend, is clearly growing in Germany. Buyout solutions through pension corporations are implemented for retirees, while buy-ins with insurance products are implemented for employees still working,” Schmidt-Narischkin added.
