Pension liabilities high in German companies
16 August 2006, AMSTERDAM - Pensions risk exposure in top German companies is 20 percent higher than in large UK and Dutch firms and three times greater than in French organisations, new research shows.
16 August 2006
AMSTERDAM - Pensions risk exposure in top German companies is 20 percent higher than in large UK and Dutch firms and three times greater than in French organisations, new research shows.
The analysis by Mercer Human Resource Consulting reveals that pension deficits represent 12 percent of company value in Germany compared to 4 percent in France, 3 percent in the UK and US and 2 percent in the Netherlands.
The survey also shows that a significant proportion of pension liabilities in German companies remain unsecured by assets, despite large-scale voluntary funding by some firms.
"The research shows how much risk top European companies are shouldering in their pension schemes," said Tim Keogh of Mercer. "Pension liabilities have a large bearing on the financial structure of major German-owned companies, with UK and Dutch-based firms following shortly behind."
Keogh explains that even if schemes are well secured by assets, "they are still exposed to longevity risk. If life expectancy increased by 10 percent, the effect on German companies would be 20 percent greater than on UK and Dutch firms and three times more than on French organisations."
The analysis shows that the combined value of pension liabilities in the biggest German-based companies (the DAX 30) is equivalent to 31 percent of the organisations' market capitalisation. This pension risk exposure is around a fifth higher than for the top UK (FTSE 100) and Dutch (AEX 25) companies, which have liabilities equating to 26 percent of their market capitalisation.
Furthermore, the largest French-owned companies (CAC 40) have pension liabilities equivalent to just 10 percent of their market capitalisation, which means their risk exposure is less than a third of that of German companies. In comparison, pension liabilities in the top US companies (S&P 500) amount to 15 percent of their market capitalisation.
Many of the large European companies surveyed by Mercer are multinationals and much of their pension exposure lies outside their home country. For example, said Keogh, "French companies may have little pension exposure in France, but significant liabilities through subsidiaries in the US, UK, and Germany, where defined benefit pension provision is far more prevalent."
German-owned companies stand out as a group as a much larger proportion of their finance, and therefore business risk, comes from pension commitments.
While German companies have a significant proportion of unfunded pension liabilities, the research shows they are ploughing much more money into their schemes than needed to cover the cost of new benefits.
"One reason companies give for making large pension contributions and taking pension assets and liabilities off the balance sheet," said Keogh, "is to improve reported company performance and credit ratings."
Copyright Expatica 2006
Subject: German news