GERMANY - PWG, a €483m Pensionskasse (insurance-type scheme) for co-operative firms in west Germany, has reported a decline of nearly one-third in its return for 2006 compared with 2005 on the back of increased reserve payouts.

In its annual report for 2006, PWG said its return on assets for 2006 totalled 4% - almost one-third less than its 5.84% return for 2005 and under the 5% average for other German Pensionskassen.

According to PWG, the steep decline was purely because it paid out far more in reserves to its 11,000 insured employees in 2005 than is customary.

"That is the only reason for the decline. The performance of our assets was similar in 2005 and 2006. For 2007, I expect a return well above 4.3%," Peter Linnemann, managing director of PWG, told IPE.

At the end of 2006, PWG had almost 16% invested in non-fixed income instruments, including equities, German Zertifikate (warrants) and private equity, compared with an exposure to non-fixed income of 24.6% in late 2005.

But Linnemann also said PWG had raised its exposure to equities to take advantage of last year's bull run so €48m, or almost 10% of assets, was invested in equities, while a further €12.2m was held in warrants and a €2m in private equity.

At the same time, PWG's exposure to fixed income, including government paper and Pfandbriefe (German covered bonds), rose to 80% at the end of 2006 from 72% at the end of 2005 while PWG's cash holdings increased to 3.5% from 1.3% during the period.

The scheme said of the €387m invested in fixed income, €70m was invested in "simple structured products with a maturity of at most 21 years".

"By using these products we expect to generate higher returns on our bond portfolio," said Linnemann.

PWG also acknowledged a recent actuarial analysis of its members has revealed its longevity assumptions "are no longer accurate" so the scheme said it had set aside another €13m in reserves as a result, €9.7m of which was generated in higher contributions on members.

The ageing effect on the scheme's finances was, however, mitigated by the fact that it won 524 members during 2006 who, in turn, will be making contributions.