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Swiss pension funds report higher funding despite lower returns

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The average pension fund in Switzerland returned 6.1% in 2013 compared with 7.4% the year before, according to figures collected by the country’s top supervisory authority, the Oberaufsichtskommission (OAK).

This figure is based on 91% of Swiss pension funds that have so far reported to the OAK and is in line with recent estimates by Towers Watson and Swisscanto.

Despite the slightly lower returns, more pension funds without a state guarantee were at least 100% funded compared with 2012.

Their share increased by 300 basis points to 93%, according to the OAK.

“Based on our analysis,” the regulator said, “only 13% (previous year: 41%) of the pension funds without a state guarantee have to be assessed as having a high or rather high risk.”

It added that other measures – such as lowering the conversion rate or switching defined contribution – also helped improve the funds’ ability to absorb shocks.

But the OAK also noted that “pressure on returns remains high, as the interest rate guarantees promised on benefits are still much higher than the interest rates used to calculate liabilities”.

However, according to official statistics, pension funds continue to adjust their parameters and are increasingly cautious in their calculations.

In 2013, only 29% used a discount rate, or technischer Zins, of more than 3.5%, compared with 47% the year previous.

The number of pension funds using the most up-to-date biometric data increased to 91% (84%), and of those, 22% (20%) are including a future increase of the longevity in their calculations of liabilities.

In its 2013 report, the OAK also pointed out that the structural reform that was initiated in 2011 still has not been fully implemented.

To date, it added, three regional supervisors have failed to create entities independent of any cantonal or other regional authorities as required by law.

“The OAK will insist on the implementation of the principle of independence with these authorities,” it said.

For 2014, the OAK is planning to “re-calibrate risk parameters” for pension funds in order to “better identify” possible measures that might need to be taken – no further details have been disclosed.

The supervisor also wants to increase the “user friendliness” of data collected from pension funds and aims “not to increase the burden” for the Pensionskassen. 

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