Number of underfunded private pension funds in Switzerland halved

SWITZERLAND – The number of underfunded private pension funds in Switzerland has halved, according to Swisscanto.

The asset manager calculated an average increase in the funding level for private Pensionskassen at 106.8%, while in a separate study Credit Suisse identified equities and real estate as the chief drivers of strong returns.

Swisscanto said the average funding level of the 340 Pensionskassen it surveyed increased by 400 basis points year on year, still well below the pre-crisis record of 113.7% reached by private Pensionskassen in 2006.

In total, 12% of private Pensionskassen remain underfunded, down from 25% in 2011.

A similar picture emerged for public pension funds aiming for full funding, as opposed to those staying underfunded on a state guarantee.

Their average weighted funding reached 98.5% at the end of 2012, up 320bps, while 58% – down from 73% – remain underfunded.

Those public funds using a state guarantee only have to reach an 80% funding level, and their average funding level currently stands at around 74.7%, up by 320 bps.

Based on the strategic asset allocation set down at the beginning of 2012, Swisscanto calculated a "conservatively estimated" annual return of 6.7%.

This is similar to the average calculated by Towers Watson for a different sample. 

Credit Suisse, however, calculated a slightly higher average of 7.2% for the Pensionskassen for which it acts as a global custodian.

In the fourth quarter, the main performance contributors were domestic equities (0.55%), real estate (0.31%), domestic bonds (0.11%) and, "for the first time after two negative quarters", liquidity (0.13%).

As at the end of 2012, the Pensionskassen had 16.8% in foreign equity and 12.5% in domestic equity, a "slight increase" quarter on quarter.

Another 20.7% allocated to real estate, 24.9% to Swiss bonds, 8.8% to foreign bonds and 7.5% to liquidity.

The Credit Suisse Pensionskassenindex shows an annualised performance since inception in 2000 of 2.25% compared with a legal minimum interest rate over that period of 2.71% on average.