The companies on the German stock exchange DAX returned 5% on average on their pension plans over 2013, according to figures from Mercer.
Looking at the 22 already available annual reports of companies that represent around 90% of pension liabilities in the DAX, the consultancy found that, despite the fact the average return halved year on year, funding levels improved from 62% to 66%.
This is down to liabilities going down for the first time since the beginning of the financial crisis, according to Thomas Hagemann, chief actuary at Mercer Germany.
“It seems a few of the DAX companies could even increase the discount rate for 2013, which led to a reduction of the liabilities,” he added.
Others were able to hold the 2012 level or make only slight adjustments.
Hagemann said it was a “great advantage” of the German system that companies did not have to fund their pension plans fully every year or achieve a minimum funding level, but were able to “sit out” drops in interest rates.
“Last year, no company was forced to offset the lower funding level with additional payments,” he pointed out.
Further, Carl-Heinrich Kehr, a principle at Mercer’s investment department, said contributions made by companies currently exceed the level of new liabilities, which he said might mean companies were shooting for a higher funding level in the near future.
In total, pension liabilities in the DAX are now at €300bn, while assets have grown to €197bn.
Over the last year, equities have boosted performance, returning around 20%, while bonds only contributed 1.4% and emerging market fixed income performed negatively.
Overall, the equities allocation of around 25% on average increased by approximately 300 basis points over the period, but Kehr put this down “more to strong returns rather than active asset reallocation”.
More than 60% of the DAX’s pension assets remain invested in bonds, while another 15% is invested in ‘other’ asset classes.
No comments yet