SWITZERLAND – Swiss Pensionskassen were able to maintain a 3.8% half-year return into July despite a market downturn in June, while Towers Watson cited improving funding levels.

According to the consultancy’s latest Swiss Pension Finance survey, the second quarter looked “very promising” up to mid-May, with Pensionskassen returning 4% on average.

However, average returns fell by 1.2% percentage points in June, leaving Swiss pension funds with an average year-to-date return of 3.8%.

Data collected by Credit Suisse for its Pensionskassenindex also showed a 0.99% loss for the second quarter.

This brought the year-to-date performance down to 2.49% after a 3.42% return posted at the end of the first quarter, according to the asset manager.

Peter Zanella, head of retirement solutions at Towers Watson in Zurich, said: “Given the continued uncertainty regarding a recovery of the global economy, returns will most likely remain volatile.”

Despite the negative performance in the second quarter, funding levels improved slightly as discount rates were raised, Towers Watson noted.

In total, the funding level in the consultancy’s sample portfolio improved by more than 200 basis points from 95.8% at the end of March to 98.2% at the end of the second quarter.

The discount rate applied by the consultancy increased by 30bps over the period, bringing down pension liabilities by almost 4%.

But Adam Casey, senior consultant at Towers Watson, noted that the discount rates based on the yield of top-rated corporate bonds would “depend heavily” on monetary policy decisions in the coming months.

Looking at a longer-term horizon, the funding levels of Swiss pension funds worsened over the whole of 2012, the consultancy added.

The average funding level of the companies listed on the Swiss SMI fell from 86% to 83% year on year.

The low-interest-rate environment pushed pension liabilities upwards by 10.8% to CHF194bn (€158bn) – an increase that positive returns could not offset.

Positive market developments also helped to increase plan assets to a “larger extent than expected”, from CHF148bn to CHF161bn, Towers Watson said.

On average, Swiss pension funds returned around 6% for 2012.

Meanwhile, the Swiss government has extended the deadline for cantons and municipalities to adhere to new regulations regarding the funding of their public pension funds.

In 2010, as part of the structural reform, the government ruled that cantons and municipalities had to decide whether to target full funding for their pension schemes or continue to guarantee underfunded plans.

The government has accepted that not all cantons and municipalities will be able to set up these new structures for their pension plans by the end of this year.

It has therefore extended the deadline by one year, stressing that this was “not due to any major failures” at the cantons and municipalities.