Pension assets at DAX companies fell in Q3 of this year by 4.6% to around €244.2bn, hit mainly by market volatility, according to the German Pension Finance Watch study published by WTW.
Pension assets fell by 5% to €42.2bn for companies listed on the MDAX.
The funding ratio for the DAX companies rose again slightly to an all-time-high of 86.6%, up 1.1 percentage points compared to the second quarter, and to 76.5% for the companies listed on the MDAX index, up 0.7 percentage points quarter-on.quarter.
Pension obligations continued to decrease after the discount rate rose by 44 basis points in the second quarter, being still low at 3.76%.
At the end of Q3, DAX companies recorded pension obligations on their balance sheets worth €282bn, -5.9% quarter-on-quarter, and MDAX companies of €55.2bn, -5. 8% quarter-on-quarter.
“The rise in interest rates is a considerable relieve for companies with regard to their pension schemes. More than four fifths of pension obligations of DAX companies are currently covered by assets specifically reserved for pension payments. This is a historic high,” said Hanne Borst, head of retirement at WTW Germany.
Borst expects the discount rate to remain well above 3% until the end of the year. She added: “We will see a significantly higher level of funding for the pension obligations at the end of the 2022 financial year, compared with the previous year.”
Aba lobbies to change rules for Pensionskassen
The German occupational pension association, aba, is calling for change in the rules on funding and investments that apply to Pensionskassen.
”Rigid funding rules of 100% of the obligations at all times do not fit with the extremely long-term business model of the Pensionskasssen,” Stefan Nellshen, deputy head of the aba expert committee on capital investment and regulation, said at a conference on supervision of IORPs held in Bonn.
Pension funds should aim instead to pay benefits on specific dates using asset and liability management.
Schemes could consider deploying a buffer for transitional periods, allowing temporary underfunding of maximum 10%, for example, according to the association.
Aba’s managing director Georg Thurnes added that changing the rules on investment would be in line with coalition agreement planning to open up investment opportunities with higher returns.
Aba is proposing the implementation of the coalition agreement, alongside changing the investment rules to boost investments in infrastructures for pension funds.
SVVK-ASIR pushes on engagement
The Swiss Association for Responsible Investment (SVVK-ASIR) has increased the number of engagements with companies in 2020 and 2021, compared with 2019, to 170 and 164, respectively, according to association’s latest engagement report.
SVVK-ASIR has also recorded growth in the number of successfully completed engagements to 9 in 2020 and 17 in 2021, the report added.
Engagement was triggered mostly by serious violations of fundamental rights of employees, local population or society, despite a growing focus on the topic of climate change.
On average, an engagement lasts for three years until the objectives set for the dialogue in a specific case, with a company, are achieved.
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