SOKA-BAU, the German umbrella organisation for two pension funds for employees in the construction industry, plans to boost its alternative investments, primarily in private equity and infrastructure, for one of its pension funds, ZVK, this year as part of its strategic asset allocation.
Assets at SOKA-BAU, which comprise assets of both ULAK and ZVK schemes, have increased by almost €600m to €11bn in 2021, according to a financial statement.
ZVK, the supplementary pension fund for the construction industry, accounted for €8.2bn of the total assets, up €588.5m year-on-year. At ZVK, the capital invested increased by €645.6m last year to €7.95bn. This corresponds to 96.6% of the total assets.
ZVK increased investments in equities and other non-fixed income securities by €863.2m, according to the statement. Total returns on investments increased from €295.6m in 2020 to €298.0m in 2021, with real estate making an important contribution to the result as part of its investment strategy.
ZVK’s investment portfolio is expected to increase by €650m to €700m in 2022. The pension fund will continue to implement its diversification strategy consistently, it said, adding that it expects investment results roughly on par with the previous year in 2022, but also higher volatility in equity markets.
ULAK, the holiday and wage compensation fund for the construction industry, accounted instead for €2.7bn of the total assets last year, down from €2.79bn in 2020, according to the statement.
Returns on invested capital increased year-on-year from €41.12m in 2020 to €42.01m in 2021.
SOKA-BAU has decided to realign ULAK’s real estate portfolio, holding an 8% allocation in directly-held properties strategically.
Pensionsfonds see number of contracts increasing
Pensionsfonds saw the total number of contracts increasing year-on-year in 2021 by 6.4% to 638,400, according to figures published by the Gesamtverband der Deutschen Versicherungswirtschaft (GDV), an organisation for private insurers in Germany.
Gross contributions grew by 26.8% to €1.3bn last year, compared with €1bn the prior year, and benefits paid increased by 8.3% in 2021 to €562m, compared with €519m in 2020.
Pensionskassen, instead, recorded a 1.6% decrease year-on-year in the number of contracts to 3.57 million. Gross contributions fell by 2.5%, from €2.24bn in 2020 to €2.23bn in 2021, according to the figures.
The portfolio of investments of Pensionskassen increased by 4.5%, from €51.8bn at the end of 2020 to €54.1bn at the end of 2021.
Swiss largest firms cut pension liabilities
The pension liabilities of the 30 largest companies on the Swiss equity market listed on the Leader index SLI fell by 3.7% or CHF7.8bn (€7.7bn) in 2021, while plan assets increased by 4.8% or CHF9.4bn, according to the Pension Risk Study carried out by WTW.
The average funding ratio, in which all companies are equally weighted, rose from 84% to 92% year-on-year in 2021, the study added.
Although a spike in inflation and rising interest will bring further distortions on the financial markets, higher discount rates are leading to a decline in pension liabilities, said Christian Heiniger, pension fund expert and senior director at WTW in Zurich.
Discount rates in Switzerland increased by close to 1.5% between the end of 2021 and May 2022, leading to a decrease in pension obligation of 20%, according to WTW.
Heiniger added: “The introduction of 1e plans as well as the adjustment of benefit parameters and financing are continuing to stabilise obligations. The optimisation of the investment strategy together with the obligations can, within the framework of an asset liability management study, lead to an increase in the expected return on assets while maintaining the same level of risk.”