Annual employer contributions to European pension plans have been rising rapidly in the past two years and could reach €20 billion ($25.6 billion) this year, according to a recent study of European corporate pension plans by JPMorgan Asset Management, London.
European plan sponsors already intend to put €12 billion into their pension plans in 2006, but that figure could nearly double if sponsors follow 2005's funding trends, when €15 billion was budgeted but €30 billion was actually contributed, the study said.
But the plans will struggle to reach fully funded status within the next five years unless contributions continue to grow, the study found.
JPMorgan analyzed the 2005 annual reports of some of continental Europe's largest plan sponsors. Companies included Heineken NV, Amsterdam; Volkswagen AG, Wolfsburg, Germany; Siemens AG, Munich; Ericsson Group, Stockholm; and Groupe Danone, Paris.
Pension plans on the Continent were on average 68% funded at the end of 2005, compared with 66% at the end of 2004.
If interest rates were to increase by 50 basis points from current levels, European pension plans would need an 8% return on assets to become fully funded by the end of 2010. The JPMorgan report predicts average annual return on investments of between 6% and 7%.