Pension fund provision in Germany is very different to the large funded markets. A substantial proportion of company pension liabilities are covered by book reserves, ie balance sheet items which are effectively self invested in the sponsor company. Unless the nature of these schemes changes, they will be unaffected by changes to the euro and investment markets.

However, some of the larger German funds which are funded in a conventional manner are making changes. These are generally more equity orientated and have embraced the opportunities with the euro providers.

Notable funds, such as Bundepost (VAP), Nestlé, and BASF are outsourcing management of euro assets due to their lack of in-house capabilities in this area. Pan-European equity management skills are not well established in Germany, and many of the larger institutions are actively seeking investment management partners in the UK and elsewhere.

In Germany, therefore, there may be some polarisation between book reserve funds which are not changing, and the larger funded schemes which are actively pursuing change. The lead taken by the larger funds suggests that the other funds will follow. However, this is going to be a slow and gradual process.

Smaller non-book reserve funds are often invested in life insurance contracts with 3% or 4% guaranteed returns and life office supervision. The assets for such contracts are heavily based in bonds and, due to matching requirements, largely based in DM.

With the euro, this widens the requirements and, in particular, there will be a greater availability of corporate debt instruments which will be attractive to insurers.

K Meier is with Höfer & Michael Kinney, Callan Bacon & Woodrow

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