GERMANY – Siemens AG has confirmed that its pension costs in its current business year may rise by 15% as a result of a reduction in its Rechnungszins – a figure used in calculating how pension obligations can be met.

For the 2005/2006 business year, which began last October 1, Siemens is to reduce its Rechnungszins to 4.5% from 5.5%. The reduction means the firm must set aside more cash to met pension obligations, as it expects lower returns on assets.

“These are, however, our expectations, which of course are subject to change,” a spokesman for the Munich-based group told IPE.

According to Siemens’ last annual report, the firm had €20.8bn in worldwide pension liabilities as of 30 September 2004. Assets to meet these liabilities totalled €17.7bn, yielding a deficit of €3.1bn.

However, at the end of the first quarter, Siemens said better returns had enabled it to cut underfunding of the schemes to €1.1bn. Siemens’ annual report for the 2004/2005 business year was due to be released today.

Last August, Siemens announced that it had sacked Mercer as its German pensions and actuarial consultant and replaced it with BodeHewitt, the new venture between consulting firm Hewitt Associates and Bode Grabner Beye.

Siemens was one of the first multi-national companies to remove pension liabilities from its balance sheet and have them funded by a contractual trust arrangement (CTA). Launched in March 2000, the CTA is known as Siemens Pensions Trust.

Since then, nearly all its peers on the Dax-30 equity index have followed Siemens’ lead.

Siemens is not the only DAX-listed company likely to face an increase in pension costs in the current business year.

Heissmann, a leading German pension consultant, estimates that pension costs for all 30 companies could rise by 7-10% owing to reductions in the Rechnungszins. Heissmann said the reductions in the figure were related to the companies’ embrace of international accounting standards.