The funding level of Swiss corporate pension schemes jumped by 7.9% to an all-time-high in Q1 2021, according to Willis Tower Watson’s pension index.

It rose quarter-on-quarter from 104.7% in December last year to 112.6% in March this year.

Pension assets continued to grow in the first quarter of this year with a positive return of almost 4%, while corporate bonds rebounded to move away from the 0% mark. As a result, pension obligations fell by 3.6%, WTW said.

This led companies’ balance sheets to reach their healthiest level since the introduction of the WTW pension fund index.

Adam Casey, head of corporate retirement consulting at WTW in Zurich, said that Pensionskassen recorded average returns of 20% as of 31 March this year.

“The main reason for the generally strong improvement in pension positions on corporate balance sheets over the past year is the remarkable recovery [of the value] of assets since the outbreak of the COVID-19 pandemic that resulted in a decline in assets at the beginning of 2020,” he said.

Discount rates “skyrocketed” in Q1 of this year, reversing the negative trend of the last nine months, WTW said.

The discount rates’ curve grew “steeper” by 20 basis points in Q1, which means that over a period of 18 years companies will see pension obligations falling by 3.5%.

Discount rates, WTW noted, remained at an all-time low, cautioning against optimistically believing that the curve has taken a different direction.

The technical biometric variables published in 2020 for the second pillar pension system will mean further relief in terms of liabilities for the companies that use them.

The variables show that the mortality rate “improved less than expected” and a decrease in the number of cases of disability, it said.

As a result, companies can expect a 4-6% reduction of liabilities if adopting updated tables, WTW added.

Keep diversifying

Asset diversification remains critical for the financial sustainability of pension schemes, according to the consultancy. Schemes will likely meet obligations and overcome “shock scenarios”, WTW said.

This is also valid with regard to the approach of pension investors towards integrating ESG standards into the investment process.

Michael Valentine, iInvestment consultant at WTW in Zurich, said: “Regardless of whether you are setting up a CO2 plan for the entire portfolio or are simply looking to talk to the global equity manager about climate-related risks, pension funds should first define their beliefs and values.”

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