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Accounting, de-risking moves bolster Swiss pension plan funding

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The coverage ratio of leading Swiss companies’ pension plans increased by 5% in 2017, with accounting changes and de-risking measures contributing to the development, according to a survey by Willis Towers Watson.

The pension liabilities of the 29 largest listed Swiss companies surveyed decreased by CHF3.6bn (€3.1bn), while assets grew by CHF900m. This took the coverage ratio from 80% in 2016 to 85% in 2017, according to international accounting standards.

According to the consultancy, accounting changes and de-risking measures contributed to this development.  

It highlighted changes to the law on so-called 1e pension plans. Last year, the Swiss parliament voted to abolish the legal minimum guarantee for the 1e plans, which offer individual investment choices for higher earners.

The amendment made it easier to treat 1e plans as defined contribution schemes under international accounting standards. 

According to Willis Towers Watson, the legal change had “a substantial impact” on de-risking strategies.

Eileen Long, senior actuarial consultant for occupational pensions at Willis Towers Watson, said many companies that did not already offer such plans were thinking of introducing them so that pension arrangements weighed less on their balance sheets.

“This is a measure to stabilise the volatility of pension liabilities and a de-risking strategy that alleviates some long-term risks pension funds face today,” she said.

“In addition, many policyholders gain flexibility and freedom to choose a pension adapted to their means.”

The return on the companies’ pension assets was around 7.8% on average in 2017, according to Willis Towers Watson, with investment strategies little changed overall compared with 2016.

The surveyed companies held around 35% of their portfolio in equities, 40% in bonds and 25% in real estate and alternative products.

The study was of companies in the Swiss Leader Index, which contains 29 holdings of the Swiss equity markets and includes the largest listed companies in the country.

See the June issue of IPE Magazine for more about Switzerland’s 1e plans

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