Strong annual returns for pension assets of companies listed on Germany's major Frankfurt stock exchanges, have prompted Towers Watson's Dr. Thomas Jasper to claim that the pensions 'crisis' in Germany is over.
The 30 firms listed on the blue-chip DAX index have seen their pension assets record a steady 4% return on average while those of firms on the mid-cap MDAX index yielded 5% through 2010, according to a recent Tower Watson report (24.02.2011).
"The crisis is a thing of the past from the point of view of German corporate pension plans," said Jasper.
Citing to Pension Funds Insider that "the degree of financing has reached pre-crisis levels" Jasper recently unveiled research that showing how well German firms have fared with their pension funding.
The rude health in company pension plans has been supported by strong growth on the German stock exchange in 2009 and 2010 compensating for the financial crisis. Corporate Pensionskassen were also reported to have been helped by recent actuarial interest rate increases, with a 64 percentage point increase in rates in the fourth quarter reducing benefit obligations by a substantial 8.4 % for DAX-listed firms.
Jasper praised the attitude of the DAX companies "who didn't save on pensions in the crisis phase despite making numerous cost cuts in other areas." He added that he expected that the financing of corporate pension plans to continue to improve as further investments are made, telling Pension Funds Insider that "we can reckon with more extraordinary returns and an accelerating trend towards fully financing obligations in the course of an economic brightening".
Annual stress tests by the national regulator have also confirmed that Germany's pension funds had emerged relatively strongly from the economic crisis, largely due to a relatively modest exposure to equities that had left any funding gaps more manageable than in the UK, for instance. Sturdy growth in the national economy has since lifted stocks and German business confidence has risen to its highest level since July 2008.
Chemical company Wacker Chemie's pension provision is well positioned going into improved economic times. As a mid-size German manufacturer with an international order book, Wacker was amongst the first firms to feel the pinch as economic activity fell in 2008 but also one of the first to thrive at the forefront of the country's export-led recovery. Easing pressure on the pensions plan became a priority of the firm as soon as orders recovered and was a major factor in the group's annual loss in 2009, with €48 million of active capital siphoned into Wacker's pension reserves, "in order to prepare for a longer life expectancy of retirees" Christof Bachmair, a media representative of the group told Pension Funds Insider.
"2010 has been an even better year than 2009 so we are quite fine" the spokesman added. A record profit in 2010 should ease concerns for the scheme's financing in the foreseeable future.
Similarly, giant car maker Volkswagen's pension plan is on the road to recovery after the twin pressures of rising longevity of retirees and an orders crisis left under 20% of obligations covered by the firm in early 2010. Spokesperson Claudia Schmidt confirmed: "we can fully agree that the crisis is over for corporate pension provision in our experience, things are going much better for us now."
Others claim to have rarely felt the crisis at all, with Kilian Rötzer, a representative of supermarket-group METRO's pension plan saying "thanks to a conservative and diversified investment strategy our pension provision was hardly affected from the financial crisis in 2008 and 2009". The Düsseldorf-based international increased the share of bonds in its corporate funds to 61% in 2009 after pulling out of money markets, and maintained a reserve of some €575 million at the end of 2009 to cover obligations via direct compensation.
The German Federal Ministry of Labour and Social Affairs praised the country's private pension funds for being "crisis proof". Spokesperson Marina Küchen also conceded, however, that some difficulties would remain as a legacy of the financial crisis such as "reduced rates of return that will have to be passed onto people at some point in the form of lower annuities than planned or expected". A handful of firms such as Commerzbank have already saved on annuities, in their case by refusing to inflation-match payments for 2010.
The Pension Insurance Association has had contrasting fortunes to the major corporate funds, and is still embarking on a slow recovery from losses incurred from rescuing the pension commitments of companies falling into insolvency, having laid out some €4 billion in 2009. The body is now at least in "calmer waters" according to the ministry spokesperson.
Not covered in the Towers Watson analysis of the occupational pensions market are public-sector pensions, which continue to provoke plenty of concern and political debate. Bernd Raffelhüschen, a pension expert at the University of Freiburg, for instance recently denounced a major regional civil servants scheme as being 'inadequately funded' and on course for a future crisis.
dbillingham@wilmington.co.uk
