Liechtenstein Sozialfonds to enhance risk taking
LIECHTENSTEIN - The largest pensionskasse in the small principality of Liechtenstein, the ‘Sozialfonds’, says it is strong enough to take on longevity and other demographic risks itself.
The CHF336.7m (€221.6m) fund saw its assets grow by around CHF10m in 2008 because of a growth in members to almost 7,000 while its portfolio posted a negative return of -11%.
Its funding level dropped from 106.9% to 94.9% at year-end 2008, but has since increased to 97.6% at end-May.
In its annual report, the Sozialfonds noted no recovery measures needed to be taken to raise the funding level of the pensionskasse, which currently is used by 1,317 companies (compared to 1,257 in 2007), as it was financially sound.
The board decided to set the interest rate for members, which is always calculated at year-end, at 2% despite the financially difficult conditions of 2008.
In Switzerland and Liechtenstein semi-autonomous pensionskassen have outsourced their longevity, invalidity and similar demographic risks to insurers. The Sozialfonds is currently using five large Swiss insurers to cover those risks.
The board is contemplating risking a further drop in the funding level in an effort to become “autonomous”. It is planning to end the contract with its largest insurance partner, Basler Versicherung, by year-end as a first step towards full autonomy.
According to the board the fund is financially sound enough to take on those risks itself and start building up special buffers.
The fund, which has introduced a risk management system in the second quarter of 2008, noted that the creation of further buffers might lead to the reduction of the current 7% calculation rate or to temporary underfunding.
The Sozialfonds also pointed out it will stick to its “cautious and conservative” asset allocation policy, as cash, high quality bonds and real estate in Liechtenstein were the main positive contributors to the performance.
Currently, around 37% of its portfolio is invested in bonds, 25% in real estate and 21% in equities.
The rest of the portfolio is divided into cash (CHF13.5m), hedge funds (CHF7.5m), commodities (CHF13m), mortgages (CHF1.95m) and other assets, including actuarial gains and insurance-based buffers.
The Sozialfonds was founded in 1981 to cover small and medium enterprises belonging to cooperatives, but since 1989, when the mandatory second pillar was introduced in Liechtenstein, any company can join the fund.