GERMANY – Pharmaceuticals company Schering has removed another €450m in pension liabilities from its balance sheet so that they can be financed by its contractural trust arrangement (CTA).
Schering said that as a result, its CTA now looked after around €1.25bn in liabilities.
The fund, called Schering Alterversorgung Treuhand Verein, was created in 2001 to finance pension liabilities from its German operations. It already had received €800m worth of such obligations prior to today’s move.
At the end of 2004, Schering Alterversorgung Treuhand Verein had invested 48% of its portfolio in equities and 35% in bonds. Another 16% was invested in hedge funds – up three percentage points from the end of 2003.
With this asset allocation, Schering aims to achieve a return of 7%.
Berlin-based Schering, with 26,131 employees, is best known for its manufacture of birth-control pills. In 2004, it had profit of €500m on sales of €4.9bn.
Schering is just one of many German multi-nationals to have created a CTA for pension liabilities amid the switch to new international accounting standards. Since last spring, CTAs have been set up at media giant Bertelsmann, engineering group MAN, the energy giant E.ON and the chemicals giant BASF.
On the other hand, CTA-funded pension liabilities are still recognised as the Direktzusage (book reserves) under German accounting rules, or HGB. The Direktzusage accounts for 59% of the €366bn in German pension assets.
In any event, building a CTA requires huge liquidity, which is why they are more common among German multi-nationals instead of SMEs.