SWITZERLAND - Historically low interest rates and lower-than-expected returns considerably widened funding gaps at Swiss company pension schemes, Towers Watson has said.

In 2011, the funding gap in the pension funds of the 30 top listed Swiss companies increased from CHF13bn (€10.8bn) to CHF23bn.

Apart from the low interest rates, which are pushing liabilities upward, Swiss pension plans have also been hit by lower-than-expected returns.

Towers Watson calculated an average 2011 return of 1.6% on pension assets for the top 30 Swiss companies compared with the expected 4.5%.

On average, the funding level of the top listed companies fell from 83% to 79% after having recovered in 2009-10 following the financial crisis.  

But Peter Zanella, head of benefits and retirement solutions at Towers Watson in Zurich, said he expected a further increase in liabilities following the introduction of the new IAS19 accounting standards.

He said the standards would also increase volatility in companies' accounts, adding around CHF7.9bn to the liabilities of the top 30 Swiss companies, which will have to be paid from the companies' assets.

The first two quarters of 2012 showed a stagnation of funding levels at all Swiss pension schemes, according to Swisscanto.

Similarly, Credit Suisse calculated an average annualised 2.04% return for pension schemes since 2000 compared with the legally guaranteed minimum interest of 2.76% for the same period.

It also noted a reduction in equity exposure over the first half of 2012 by 100 basis points to 28.1%.

The bond allocation stood at 34.3% - a 30bps decrease year on year - while liquidity exposure increased by 80bps to 7.4%.

Within alternatives, Credit Suisse noted a continuing shift of investments away from hedge funds to commodities.

In total, the alternative allocation in the average Swiss pension fund portfolio increased from 4.9% to 5.2%, despite private equity exposure falling by 20bps.

Real estate investments remained virtually unchanged at 21.3%.