'Schemes need 10% growth to mark time'
A new report from asset manager J P Morgan Fleming claims European corporate pension schemes will need to grow their assets by up to 10% a year – assuming no extra contributions are made – to maintain their funding level.
“Assuming no contributions are made, we found that a typical plan will need to produce 5-10% asset growth per annum in order for their funding level not to deteriorate further,” J P Morgan said. It added: “If rates remain unchanged even 10% asset growth would barely make a dent in funded status.”
The report also states that contributions and market outperformance, or alpha, will become “increasingly necessary”.
The comments come in the firm's 20-page ‘Overview of European Corporate Pension Plans – assessing the funded status of the largest corporate pension plans’. It was compiled by Gabriella Barschdorff, vice-president in J P Morgan Fleming's strategic investment advisory group.
Barschdorff reviewed data from the 2003 annual reports of 71 of the largest European corporate pension plans – ranging from ABB to Vivendi. Schemes surveyed ranged from €30m to €40bn.
The report found that the average plan is still only 74% funded on a projected benefit obligation basis - down from 95% in 1999. Total contributions in the period were €18.5bn, down from 2002's €21.4bn. But compared to the size of the scheme, average plan contributions fell to 4% of the liability, from 5% in 2002.
Among the firms making large contributions were DaimlerChrysler (€2bn) and Aventis and Siemens (€1.8bn each).