SWITZERLAND - Demographic changes and lower than expected returns have been the biggest headaches for Swiss Pensionskassen this year, according to an Ernst & Young survey.

Eight out of 10 pension funds said demographic changes were the biggest challenge currently facing the industry, while 79% of respondents cited "substantially lower than expected returns".

Nearly 70% of the larger Pensionskassen - having more than CHF1bn (€780m) in assets under management - said the high level of legal guarantees that could not be easily reduced was also a significant problem, while 63% cited regulation as a concern.

Asset-allocation adjustments (69%) came top of the list of topics that pension funds are reviewing "more intensively" than on a day-to-day basis, followed by risk management and governance, and discount and conversion rates (both 61%).

Meanwhile, the vast majority (85%) agreed pension funds would have to reduce their benefits or increase contributions in future due to lower than expected returns.

Two-thirds of respondents predicted employers would set up schemes in which they would not have to contribute in case of underfunding, while 53% said partial or full guarantees offered by insurances would gain importance.

The survey also found most pension funds believe their retired members would reject contributing to recovery measures - currently only possible for contributions made above the mandatory second-pillar rate.

Ernst & Young also found a willingness among respondents to undertake a solvency test adjusted for Pensionskassen, adding that pension funds would like to "de-politicise" certain decisions like the minimum return and instead have their own boards set that rate.