Swiss Pensionskassen have applied on average an interest rate on pension savings of 1.86% last year, above the binding minimum 1% for the second pillar, despite uncertainties caused by the COVID-19 pandemic, according to a study published by Zurich-based consultancy PPCmetrics.

The majority of the pension funds (70%) granted an interest rate above 1% in 2020, compared to 77% in 2019.

The average interest rate on savings, according to the study, has decreased over the years, from 1.99% in 2008, and by 0.67% percentage points from 2019.

Last year private pension funds applied an interest rate of 1.90% compared with 1.65% for public pension funds.

This year the federal commission for occupational pensions – BVG Kommission – has recommended an unchanged minimum interest rate of 1% for 2022.

But BVK’s president told IPE the government could this autumn decide in favour of a higher interest rate if returns and Pensionskassen’s funding ratios, now at its highest point since 2004, continue to balloon.

The average funding ratio measuring the effective financial situation of pension funds from the point of view of the insured rose last year to 103.2% from 102.3% in 2019 for fully funded Pensionskassen, above the record level of 2017 of 102.4%.

The average technical funding ratio calculated taking assets and liabilities into account reached 111.6% at the end of 2020, compared with 110.0% the prior year, with returns exceeding targets.

The Pensionskassen recorded average returns of 4.21% in 2020. Returns at private pension funds were slightly higher (4.22%) that those recorded for public pension schemes (4.18%).

Returns ranged from -4.10% to 11.06% for the 238 private pension funds examined with assets totalling CHF479.34bn (€442bn), and from a minimum of 1.93% to a maximum of 7% for the 52 public pension funds researched with total assets worth CHF257.95bn.

A majority of around 60% of the pension funds applied a conversion rate to calculate pension pay-outs upon retirement – Umwandlungssatz – of between 5-6% at the beginning of 2021.

Around 14% of the pension funds researched used a conversion rate of over 6%, while around 25.8% applied a conversion rate of 5% or lower.

The analysis shows that Swiss Pensionskassen plan to cut the conversion rate in the future to 5.30% on average.

PPCmetrics’ study also noted that the share of Swiss pension funds focusing on sustainability has increased in the past three years by 14 percentage points to 38% last year.

Public pension funds in particular address sustainability in their financial statements – 70% at the end of 2020 – compared with 33% of private pension funds.

For this survey PPCmetrics examined the financial statements of 305 Pensionskassen with assets of around CHF748bn covering 3.5 million insured individuals.

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