A new survey of Swiss pension funds shows that over the year 2011, schemes did not manage to achieve the positive results they had hoped for.
Required yields were not delivered, the survey by asset manager Swisscanto revealed, which led to a continued reduction in cover ratios, though private pension funds manage to report reserves of on average more than 100%.
Swisscanto says that achieving the necessary target yields remains the greatest challenge for those in charge in the current year.
The survey is based on answers from 326 participating funds, altogether representing 2.5 million beneficiaries and fund assets of CHF 426bn.
Reduced cover ratios
The net performance as measured by the survey gives an insight into the current financing situation for pension funds. The figure recorded for 2011 is -0.32%, which has led to a mild erosion of assets. The yields achieved predominantly fall within the -2.5% and +2.5% range. Barely half the participating funds (46%) managed to achieve a positive result.
The asset manager says that occupational pensions in Switzerland have been tarnished by unsatisfying capital gains for several years now. The average yield of all participating funds over a five-year period is positive by only a small margin of 0.2% p.a.
Cover ratios have dropped more dramatically due to pension liabilities with higher interest rates. A drop from 106% to 103% was recorded for private-law funds and from 98% to approximately 95% for public-law funds with full capitalisation.
Recapitalisation measures
The current situation has forced several pension funds to carry out further recapitalisation measures, of which the most commonly named was to reduce rates (for all-inclusive pension schemes), followed by charging recapitalisation contributions from employers and employees.
The prevailing uncertainty is closely linked to haziness surrounding the future of the euro zone. In a time of persistently low growth, low-interest policy carries the risk of deflationary trends, whereas money supply expansion could lead to accelerated inflation. Depending on the expected development, the funds would have to employ completely different strategies.
To protect themselves from inflation the schemes mostly said they invested in real estate or shares. Asset allocation in general experienced hardly any change in the past year, the survey found. The percentage of assets made up by bonds increased slightly from 36.7% to 37.3%, primarily due to exchange rate fluctuations. One in five participating funds also expanded their proportion of emerging market bonds.
First published 22.05.2012
azeevalkink@wilmington.co.uk
