EUROPE - A typical European corporate pension plan would need to achieve an investment return of between 5% and 10% depending on interest rates in order for its funded status not to deteriorate further, new research has revealed.
According to JPMorgan Fleming Asset Management’s Overview of European Corporate Pension Plans, even 10% asset growth under current interest rates would barely make a dent in the funded status of most plans.
JPMorgan found contributions as a percentage of assets fell from 9.2% of plan assets at year-end 2002 to 6.5% of plan assets at the end of 2003.
Despite positive asset markets in 2004, the average funded ratio fell from 74% in 2003 to about 70% at year-end 2004 before contributions.
Peter Schwicht (pictured), head of European institutional business at JPMorgan, said: “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.”
The research showed pension plans sponsored by Swiss companies were in the best funded position with an average asset-to-liability ratio of 90% (2003), closely followed by Dutch and Nordic firms. German company plans are on average the worst funded with a ration of only 56%, however regulations on funding practices differ between countries.
The overview assessed the 71 largest corporate pension plans in continental Europe ranging in asset value from e30m to e40bn.
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