German corporate pension funds are trying to anticipate market risks, such as interest rate fluctuations, maintaining the highest possible level of funding for pension obligations, even in an adverse scenario, said Angelika Brandl, partner at Aon Wealth Solutions in Germany.

Ongoing monitoring of investment decisions through asset liability management studies helps companies tailor their investment strategy precisely for future pension cash flows, she added, commenting on the latest Aon study on the financial statement of companies listed on the DAX index.

Last year, the amount of pension obligations on the books of companies listed on the DAX rose by 5.6 percent to €332bn, the study said.

This was primarily the result of the development of the discount rate falling from 3.82% in 2022 to to 3.46% in 2023, and in part the result of Rheinmetall and Commerzbank joining the index, bringing with them a higher amount of pension obligations than Linde and Fresenius Medical Care, which left the DAX, it added.

The duration of pension obligations varies, ranging from 9 to 23 years, according to the study.

Rising interest rates meant that companies did not have to build a large amount of provisions for pension obligations because the prospect of income from higher interest resulted in a lower value of funds needed to finance future pension promises, added Christoph Tellmann, senior consultant at Aon.

Despite increasing pension obligations, the funding ratios of DAX pension schemes remained stable at 78% in 2023, compared with 79% in 2022, Aon’s analysis showed.

The amount of assets specifically set aside by companies to fund pension obligations rose by 4.8% year-on-year, from €248bn in 2022 to €260bn last year, it added. This means that the degree of funding of pension obligations remained at a consistently high level.

Gains on capital markets led DAX companies to achieve higher returns last year. DAX Companies rely on a broad diversification of investments to fund pension provisions, investing, however, mostly in bonds, according to the study.

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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