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Swiss pension fund liabilities increase by 4% over first quarter

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Swiss pension funds’ liabilities grew by 4% over the first quarter due to a sustained drop in discount rates, according to Towers Watson’s Global Pension Finance Watch.

At the same time, investment returns have come under pressure in recent months, according to UBS. 

The Towers Watson report, which covers defined benefit plans, found that the Swiss benchmark discount rate fell by 23 basis points to 0.72% over the first three months of the year.

Over the last 12 months, Swiss funds have seen the rate fall by 100bps.

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This is mirrored in the steep and steady decline of long-term interest rates in Switzerland, where the 30-year government bond yield fell from 1.52% to 0.42% over the last 12 months, while the 10-year yield fell from 0.96% to -0.05%.

As a result, Towers Watson’s pension finance index for Switzerland fell by 1.8% over the period.

This is despite positive investment returns for Swiss pension funds.

The benchmark portfolio grew by 2.1% over the same period and by 10.7% over the past 12 months.

According to the report, Swiss pension funds’ domestic equity portfolios grew by 3.2% and fixed income portfolios 2% over the first quarter.

However, data from UBS shows returns for Swiss pensionskassen are coming under increasing pressure.

According to the UBS Pensionskassen Barometer, returns in June fell by 1.6%, bringing the overall return for the first half into negative territory.

UBS noted how the negative returns recorded in June were almost equivalent to the levels seen in January, when Swiss pensionskassen were caught in a storm caused by the Swiss National Bank’s decision to abandon the peg with the euro.

In February, the monetary authority also introduced a negative rate of 0.75% on Swiss banks’ deposit account balances, which meant pension funds were being charged to hold cash deposits.

The UBS Pensionskassen Barometer also found that return differentials between institutions of different sizes were negligible.

In June, all asset classes held by Swiss pensionskassen performed negatively, particularly Swiss equities and foreign government bonds, which fell by 4.92% and 1.66%.

Swiss government bond portfolios fell by 0.83%.

The data may signal that a positive trend for Swiss pension funds, which have grown assets steadily over the past three years, might be reversing.

During the first quarter, the Credit Suisse Pension Fund Index reached an all-time high, although the pace of growth had been slowing steadily from February.

The index grew by 1.51% in the first quarter, reaching a record high of 154.53 due to a 2.74% performance in February.

However, Credit Suisse reported that the index had grown by just 0.64% in March.

The annualised return since January 2000 is 2.89% compared to the annualised mandatory minimum rate for pension funds of 2.55%.

This is set by BVG, the Swiss pension regulator.

For the first quarter, Credit Suisse found pension funds decreased their cash allocations to all-time lows, while allocations to domestic fixed income increased from the previous quarter.

Equity allocations remained stable. 

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