The latest study on the pension liabilities of the 30 largest Swiss companies revealed that the "negative spiral" in interest rates had a major impact on pension plans in 2012.
According to Towers Watson's Pension Risk Study 2013, the average funding ratio fell further in 2012 and is now below 2008 levels.
Towers Watson also said that the revised IAS 19 accounting standards, which took effect on 1 January 2013, and the interest rate fluctuations from central bank monetary policies will cause greater balance sheet volatility.
As a result of the findings, Towers Watson warned that companies will have to take appropriate measures to further minimise the risk in their pension plans.
Towers Watson head of benefits and retirement solutions Peter Zanella said: "The negative performance is mostly down to the current low-interest-rate environment.
"In addition, the new reporting regulations applicable since January and the interest rate fluctuations resulting from central bank monetary policies will cause greater balance sheet volatility in the future. The new regulations will also lead to an increase in pension expenses."
In 2012, pension liabilities grew "significantly" by 10.8% to CHF 194bn, while plan assets "rose above expectations" from CHF 148bn to CHF 161bn.
Regarding the assets increase, Pascal Wyer, Towers Watson pension fund expert, said: "This excellent result was not enough to offset the negative effect of the actuarial interest rate."
The average funding ratio of the 20 SMI companies fell from 86% to 83%, while it remained at 79% for the Swiss Leader Index (SLI) companies, the 30 most important companies on the Swiss stock exchange.
Towers Watson said that the three companies with the highest coverage of pension liabilities are currently Credit Suisse at 101%, Syngenta at 96% and UBS at 96%, while Roche (67%), Geberit (68%) and Transocean (68%) rank much lower.
The firm emphasised though that it was important to note that this funding ratio differs substantially from the regulatory funding ratio reported by Swiss pension funds, which requires refinancing measures in the case of underfunding, among other things.
Towers Watson reported in its quarterly pension fund index that the funding ratios of schemes in Switzerland have experienced a recovery in the first half of 2013.
Even though the funding situation of Swiss funds has declined, in comparison with companies in the US and Germany, the funding ratio of SLI companies is actually higher than average.
Fortune 1000 companies report a funding ratio of 75%, while only 61% is reported for DAX companies.
Commenting on the revision of IAS 19 standards, Zanella said: "The positive side of this is the increased transparency. Now companies will have to take appropriate measures to minimise the risks in their pension plans.
"However there is no fool proof way of doing this – each company's situation has to be examined on an individual basis. Important questions to be answered include which guarantees, such as the conversion rate, can continue to be maintained and how much the desired level can cost."
First published 20.06.2013
monique_simpson@wilmington.co.uk
