In a press release, MercerHR said the combined value of pension liabilities in the biggest German-based companies equals 31% of the firms’ market capitalization. Top UK and Dutch companies have pension liabilities equal to about 26% of their market capitalizations. By comparison, top US companies have pension liabilities equal to 15% of their market capitalization, MercerHR said.
The largest French-owned companies have liabilities equal to 10% of market capitalization, according to the release.
“Pension liabilities have a large bearing on the financial structure of major German-owned companies, with UK and Dutch-based firms following shortly behind,” Tim Keogh, Worldwide Partner at Mercer, said in the release. “Even if schemes are well secured by assets, they are still exposed to longevity risk. If life expectancy increased by 10%, the effect on German companies would be 20% greater than on UK and Dutch firms and three times more than on French organizations.” Keogh added, “Many of the large European companies are multinationals and much of their pension exposure lies outside their home country.”
Although MercerHR’s research found that German-owned companies have only about 61% of pension liabilities funded, these firms are contributing much more than their counterparts to fund new benefits. In 2005, large German-owned companies contributed £3.27 for every £1 of new pension benefits, compared to £1.82 for every £1 contributed by top French firms. Organizations in the FTSE 100 contributed £1.56 for every £1 of new pension benefits.
French-owned firms had the lowest level of scheme funding, with just 57% of pension liabilities covered by assets. Large Dutch and UK companies have relatively well-funded schemes, with 92% and 89% of liabilities covered by dedicated assets, respectively.
As a percentage of market capitalization, the pension deficit for top German-based firms is equal to 12% of market capitalization – considerably higher than that of French-based (4%), UK-based (3%) or Dutch-based (2%) firms.
MercerHR’s report “Pension deficits: up and down” can be found at www.MercerHR.com/finance .