Swiss corporate pension funds are under increasing stress caused by swelling pension liabilities and the risk of a prolonged period of low interest rates returning, while the Swiss National Bank (SNB) continues to cut interest rates and bond yields fall.

As long as interest rates remain low, companies’ future pension obligations will continue to rise, consultancy WTW said.

Even if the assets of corporate pension funds generate stable to moderate returns, the low interest rate environment increases the burden on balance sheets, and makes it more difficult to manage obligations, it added.

Falling bond yields have dragged down the discount rate that decreased by 0.08%, from 0.95% to 0.87%, in Q4, leading to a slight increase in the Projected Benefit Obligation (PBO) by 1.7%, according to WTW’s quarterly Pension Index.

Corporate pension fund assets went up by 1.5%, partially offsetting increasing liabilities, but funding ratios fell to 120.9% in December 2024, from 121.1% in September 2024, WTW’s report disclosed.

In December, both the SNB and the European Central Bank (ECB) proceeded to further cut interest rates.

The SNB cut interest rates to 0.50%, while the ECB reduced its interest rate to 3%, WTW noted, adding that with central banks carrying on with their expansionary policies, pension funds and investors should adjust their strategies to a dynamic market.

“Many companies may need to further refine their financial and pension strategies considering these developments,” said Adam Casey, head of corporate retirement consulting at WTW in Zurich.

He added: “To ensure long-term stability, companies should engage with their pension funds and consider reviewing asset allocation strategies to ensure they are appropriate in changing market conditions.”

For the consultancy, it is increasingly critical that corporate pension funds adjust portfolio allocations, because a return to a prolonged phase of low interest rates favours allocations to equities, high-yield assets and sectors including technology and green energy, while discouraging investments in fixed income.

“Given the liquidity environment and expectations for a continued [period of] low interest rates, institutional investors are well advised to focus on diversified strategies,” added Alexandra Tischendorf, head of investment at WTW Switzerland.

She suggested pension funds should embrace active management to navigate an extended low interest rate scenario.

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