The analysis also shows that a significant proportion of pension liabilities in German companies remain unsecured by assets.
The combined value of pension liabilities in the biggest German-based companies (the DAX 30) is equivalent to 31% 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% of their market capitalisation.
Furthermore, the largest French-owned companies (CAC 40) have pension liabilities equivalent to just 10% of their market capitalisation, which means their risk exposure is less than a third of that of German companies. Pension liabilities in the top US companies (S&P 500) amount to 15% of their market capitalisation.
Tim Keogh, worldwide partner at Mercer, said that 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 organisations." He added: "Many of the large European companies are multinationals and much of their pension exposure lies outside their home country. For example, 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."
According to the research, French and German-owned companies have the lowest level of scheme funding, with just 57% and 61% of pension liabilities covered by dedicated assets respectively. French-owned companies have an average pension deficit of 4% of market capitalisation, while the average for German companies is a deficit equivalent to 12% of market capitalisation.
In a separate report, Mercer warns UK companies that new age discrimination regulations will have a much greater impact on pension schemes than originally anticipated, and many employers will face significant extra costs to ensure their schemes are compliant.
