Swiss regulator warns on rising funding risks in occupational pensions

Switzerland’s occupational pension supervisor, the Oberaufsichtskommission Berufliche Vorsorge (OAK BV), has warned that funding risks for pension funds are intensifying, urging institutions to conduct asset allocation stress tests to assess their resilience in adverse market conditions.

The recommendation follows a stress test conducted by the regulator on 1,237 pension funds, which found that 57.4% would fall into underfunding in the event of a severe market downturn.

Under the extreme scenario modelled, pension schemes would suffer heavy losses across asset classes: -20% on alternatives and equities, -15% on real estate, and -10% on bonds.

OAK BV attributed the increased vulnerability to ongoing market volatility, in part triggered by new US tariff measures. The regulator noted that the financial position of pension funds had already been negatively affected in early 2025 following a strong performance in 2024.

A further deterioration in global trade conditions could deepen losses this year, it said.

In such a downturn, pension funds would be forced to draw on reserves to buffer against market shocks.

It is prudent for pension funds to conduct a range of investment stress tests to assess whether the investment risks they assume align with both their capacity to restructure and the risk tolerance of their governing bodies, OAK BV president Vera Kupper Staub told IPE.

Swiss pension schemes have built up reserves over the past two years to counterbalance market volatility. According to OAK BV’s annual report, funding ratios improved to 114.7% at the end of 2024, up from 110.3% a year earlier, while returns rose to 7.4% in 2024 from 5.2% in 2023.

The stress test results showed that 42.6% of funds maintained sufficient reserves to remain fully funded in a negative scenario. However, 6.1% of schemes would remain underfunded even after implementing restructuring measures over a seven-year horizon – a key metric for systemic risk in the occupational pension system.

The findings suggest that most Swiss pension funds take a prudent approach to investment strategy, prioritising the accumulation of fluctuation reserves, OAK BV said.

However, the regulator’s modelling assumptions have faced criticism.

Oliver Dichter, co-head of the asset liability management service at consultancy PPCmetrics, pointed out that the stress test assumes falling bond prices due to rising yields – a scenario that could, in fact, benefit Swiss pension funds.

“Unfortunately, this perspective is missing from the OAK stress test. The stress test assumes negative bond yields, [and] it even implicitly assumes that interest rates will rise by approximately 1.5%. This would actually be a positive scenario for Swiss pension funds,” he said.

He added that persistently low or negative interest rates, combined with prolonged equity market corrections, remain the more problematic scenario for the system.

Kupper Staub acknowledged that very low or negative rates pose specific risks, particularly in schemes with nominal guarantees.

She noted that pension funds have had to adapt to the low-rate environment, adding that this scenario must be incorporated into their risk assessments.

Multi-employer schemes, which typically hold lower reserves, are more susceptible to underfunding, OAK BV said. However, their lower share of pensioners enhances the effectiveness of restructuring efforts.

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