Swiss Pension Funding: Still a Mountain to Climb

A better investment year for Swiss pension funds, but the elusive target cover ratio is proving tricky to reach.

(May 15, 2013) — Despite a solid year for investment returns, Swiss pension funds are still failing to reach their target cover ratios, restricting the extent to which they can invest the pension assets.

A survey of 343 pension funds by Swisscanto recorded an average return yield of 7.2%, helping the pension funds to vastly improve their cover ratios — the relationship between pension liabilities and the capital available for these liabilities in a pension fund.

Corporate pension funds increased their asset-weighted cover ratio from 103% to 109%, while the ratio for public pension funds with full capitalisation increased from 95% to 100% – but both fall short of the target of 100% cover ratio plus 16% value fluctuation reserve.

Failing to reach their target cover ratio is limiting what Swiss funds can invest in, and to compound their woes, a low-interest rate environment is dampening bond yields.

In response, Swisscanto reported the funds were striving to adapt their strategies: last year, around 30% of the pension institutions participating in the survey made adjustments, of which at least 50% reduced the proportion of bonds they held.

Swiss funds are also counting the pennies in this cost conscious environment, being careful to keep expenses under control and to use any opportunities to make savings both in general administration and capital investments.

Swisscanto found that since 2007, the total expenses for capital investments and administration of insured persons have been reduced by the smaller pension funds (those with less than 250 beneficiaries) by almost 40% per head on average, from around CHF1,170 to CHF720.

The largest funds (those with over 10,000 beneficiaries) have reduced their expenses per head by 20%, from CHF430 to CHF345.

The full report can be found here. 

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