Index investing of Swiss pension funds has recorded a two percentage points increase in 2023, reaching an all-time high of 33% of total assets that are allocated passively, confirming a steady upward trend of such investments in recent years, according to the Swiss Pensionskassenstudie 2024 published by Swisscanto this week.

Primarily medium-sized pension funds in Switzerland opt for index investments, as they seek lower costs and higher performance, the study added.

It also showed that 41.9% of pension schemes’ total assets is allocated via investment funds and 21.3% via investment foundations, a share that remained almost unchanged year-on-year in 2023.

Last year was the year of “normalisation” for schemes’ asset allocations, after a period of rising interest rates, with allocations to bonds and equities increasing again to 27.9% and 32.1% of total assets, respectively, according to the report.

Allocations to real estate recorded a decline for the first time, from 27% to 25.8% year-on-year, after a constant growth in recent years. The allocation to alternatives also fell, from 6.2% in 2022 to 5.3% in 2023, it added.

The share of liquidity also increased slightly for the first time, from 4.1% to 4.4%, meaning that Swiss pension funds were reluctant to invest last year, Swisscant noted.

Last year, Swiss schemes achieved average net returns of 5.1%, with average returns of the best performing schemes standing at 8.2%, while the worst performing achieved 2.3% net returns, the report disclosed.

Iwan Deplazes, head of asset management at Zürcher Kantonalbank, said that both funding ratios and fluctuation reserves, particularly of best performing pension funds, improved, leading it to apply an interest rate of 3.7% on pension savings of members that are still working, well above the minimum of 1%.

The funding ratios of private pension funds stood at 119.6% in Q1 this year, up from 113.5% at the end of 2023. The average conversion rate used to calculate pension payouts is currently 5.31%, and it is expected to go down to 5.23% by 2029.

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