EUROPE- The funding ratio of European corporate pension plans fell from 74% in 2003 to around 70% at the end of 2004 before contributions despite positive markets in 2004, according to research from JPMorgan Fleming Asset Management.
The Overview of European Corporate Pension Plans, which assessed the funding status of Europe’s largest corporate plans, suggests that a typical plan will need to produce 5-10% asset growth a year, depending on interest rate changes, for their funding rate not to worsen further.
JPMorgan Fleming analysed market impact on the status of 71 of the largest European corporate pension plans.
European pension plans are maturing, with a gradual decline in service costs, said the Overview. Contributions as a percentage of assets fell from 9.2% of plans assets at year-end 2002 to 6.5% of plan assets at the end of 2003.
The study also found that asset allocations of typical European plans have a more conservative mix of bonds and equity (52% bonds/26% equity) than US plans, but hold more real estate (8% compared with 3%).
Peter Schwicht, head of European Institutional Business at JPMorgan Fleming, commented: “There are certainly challenges ahead as European pension funds strive to regain lost ground. We believe that the most successful plans will make a concerted effort to understand the challenge, with strategic planning that includes funding goals, and asset growth needs. Successful pension plans will also need to assess their risk tolerance and the availability of contributions, as well as their asset liability duration matching and the diversification of their portfolios in terms of sources of return and the efficient use of capital.”
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