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Switzerland: BVK posts 5.7% return for 2016, railways pension fund 3.4%

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The Swiss pension fund for employees of the canton of Zurich and the country’s federal railways pension fund achieved returns of 5.7% and 3.4%, respectively, in 2016.

BVK, the CHF29bn (€27bn) Zurich pension fund, said its return of 5.7% was a “good performance” and that it was largely down to gains in US equity markets, its overseas equity and emerging market debt portfolios, and commodities.

The pension fund’s asset management costs reached a record low, it said, with the total expense ratio (TER) standing at 0.18%. It noted that this is below the 2016 average (0.51%) for Pensionskassen calculated by Swisscanto.

Its funding level, on a provisional basis, was 99.4% at the end of 2016. BVK described this as a “very good starting position” from which to cut the technical rate (technischer Zinssatz), which is akin to the discount rate, to 2%, as it announced it would do over a year and a half ago.

The pension fund has also cut the conversion rate. Its changes to the scheme’s technical parameters have been heavily debated, and the pension fund has been fighting to keep members from moving to other providers.

 
 Asset allocationBVKPK SBB
Equities33%16.6%
Fixed income43%60.8%
Alternatives6%6.7%
Real estate18%10.9%
Liquidity*5.0%
Total100%100.0%
   
* BVK includes liquidity in its fixed income category
Source: BVK, PK SBB, adapted by IPE

The new technical rate of 2% puts BVK’s coverage ratio provisionally at 92.6%, which BVK said means no further recapitalisation contributions will be required.

BVK’s target return is lower as a result of the changes to the technical parameters., at 1.5%. This is the return that is needed to maintain the funding ratio at its current level.  

Pensionskasse SBB (PK SBB), the CHF17.1bn pension fund for the Swiss federal railways, achieved a return of 3.4% on its investments in 2016.

This is up from 1.5% the year before, but lower than its benchmark, which posted a return of 3.8%. The pension fund said this was because interest rates in the capital markets fell yet again in 2016.

Pensionskasse SBB’s funding level fell from 105.7% in 2015 to 104.6% in 2016, as a result of the pension fund lowering the technical rate from 2.5% to 2% with effect from 31 December 2016. This increased liabilities by CHF438m.

The return and the funding ratio figures are provisional, and the scheme’s annual report will be published in April 2017.

Swiss Pensionskassen’s allocation to alternatives reached a record high as at the end of 2016, according to a quarterly survey carried out by Credit Suisse.

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