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Trump win delivers end-2016 boost for Swiss pension plan funding

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Swiss pension plans’ funding position improved markedly over the course of the final quarter of 2016 largely due to market moves following the election of Donald Trump as US president, according to Willis Towers Watson.

The consultancy calculates an illustrative funded ratio index – the ratio of pension assets to pension liabilities – for Swiss pension schemes as part of a quarterly review on how their financing is affected by capital market developments.

The index was up by 6.6 percentage points over the fourth quarter, rising to 96.8%.

At the end of December 2015, it stood at 94.8%.

The improvement in the funding position was largely due to higher bond yields, which resulted in pension liabilities falling given higher discount rates.

The magnitude was 40 basis points.

Positive investment returns in the fourth quarter contributed to a small extent to the improvement in the index, according to the consultancy.

It said returns on assets typically held by Swiss pension funds were 0.5% higher in the final quarter compared with the preceding quarter.

Trump’s win in the November US presidential elections is behind the end-2016 improvement in Swiss pension plans’ funding, according to Willis Towers Watson.

Michael Valentine, senior investment consultant at the consultancy, said: “Despite vague and sometimes contradictory political statements, Trump’s election victory triggered a proper rally on the equity markets in December 2016.

“As a result of higher inflation expectations, investors plunged into equities and sold bonds, which is why yields and discount rates rose.”

Peter Zanella, head of retirement solutions at the consultancy, said Swiss companies still need to be careful despite the improvement in their balance sheets and encouraged them in particular to check if the conversion rate (Umwandlungssatz) their plans offer is sustainable in the long-run.

The conversion rate is used to calculate members’ pension payout levels.

Persistently low yields over the past several years have caused some pension funds in Switzerland to lower conversion rates.  

Positive asset returns from foreign equities drove the Credit Suisse Pension Fund Index to an all-time high at the end of December.

It rose by 0.81% over the fourth quarter to hit 159.91.

The index is based on yields achieved by Swiss pension providers, before administrative costs, that have mandated the bank as a global custodian.

Credit Suisse said that, as in the previous quarter, foreign equities contributed the most to the index’s rise (0.92%), followed by domestic equities, alternative assets, real estate and other holdings.

Swiss franc bonds, foreign bonds and mortgages had a negative impact.

The annualised return since January 2000 is 2.80%, compared with the annualised mandatory minimum rate for pension funds of 2.44%.

The minimum return is set out in the BVG, the law goverining the Swiss pension system.

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