Returns on investments for equities (14.2%) and alternatives (13.6%) have resulted in an increase of Swiss pension funds’ funding ratios to 119.9% in the first half of this year, up from 113.5% at the end of 2020, according to figures published by the Swiss Occupational Pension Supervisory Commission OAK BV.
The performance on equity and alternative investments progressed quarter-on-quarter from 6.1% and 6.0%, respectively, at the end of March this year. Infrastructure, now considered a stand-alone asset class by Swiss law, returned 5.2%, up from 4.5% in March.
Yields on real estate allocations jumped from 1.5% in March to 6.3% in June this year. Bonds continued a quarter-on-quarter negative performance from -1.9% in March to -1.6% in June. Liquidity went from -0.2% in Q1 to -0.4% in Q2, according to OAK BV’s figures.
Pension funds’ funding ratios significantly improved year-on-year, the regulator said, from 102.0% at the end of March 2020 to 115.5% in March 2021, and from 107.9% at the end of June 2020 to 119.9% in June this year.
The funding ratio of Swiss pension funds at the end of Q1 2021 stood at 115.5%.
According to the regulator, 20 pension funds were underfunded at the end of June, down from 26 in March, but slightly up from 19 at the end of 2020.OAK BV underlined that a sufficiently high level of funding ratios, meaning a sufficient amount of fluctuation reserves, is essential for the financial stability of Swiss pension funds.
The average target size of fluctuation reserves is 17.8% of pension capital.
At the end of 2020, 30% of pension funds in Switzerland had fully built up reserves to meet the target value. At the end of March 2021, the number of pension funds rose to 42% and at the end of June 2021 two thirds of pension funds had fully amassed reserves to meet their target, which however still remains “volatile”, OAK BV said.
Swiss pension funds have built a buffer to deal with a new market downturn while faring fluctuations from equity markets during the COVID-19 pandemic, it said.
A reform of the conversion rate law remains necessary, the regulator said, adding that with the changes pension funds can deliver benefits for their insured within a more realistic legal framework.
OAK collected data from 1,345 pension schemes with total assets under management of around CHF798bn.