The Swisscanto Pension Funds Monitor shows that the funded status of Swiss pension institutions remained stable in the first quarter of 2011. Private-law pension funds fared better on average than public institutions.
Considering the many uncertainties – national debts in the euro area, strong movements by the Swiss franc, unrest and military interventions in North Africa with increased energy prices, disaster in Japan – Swisscanto believes pension fund investments held up well in the first quarter of the year.
Weak investment performance cannot balance pension fund liabilities
For the period from 1 January 2010 to 31 March 2011, asset allocation structures generated an asset-weighted return of 2.6%. The current BVG/LPP minimum rate is thus being financed from pension fund assets. Moreover, taking into account administrative costs and the still too high conversion rates (6.95% for men and 6.9% for women) used for calculating retirement pensions, pension funds need to realise much higher returns on investment in order to cover their financing requirements.
Stagnating funded status
As in 2010, funded status continued to stagnate in the first quarter of 2011. As at 31 March 2011, private-law pension funds had a funded status of 104.6%, 0.1% higher than at the end of 2010. In the case of public-law funds, funded status remained stable at 81.8% compared with the previous quarter. All in all, the average asset-weighted funded status of the surveyed pension funds rose very slightly from 98.5% to 98.6% in the first quarter.
With a funded status of 104.6%, the asset fluctuation reserves of private-law pension funds remained practically stable compared with the prior quarter. Public-law pension funds, on the other hand, were strongly underfunded with a cover ratio of 91.8%.
However, thanks to the funding target of 80% voted by Parliament in 2010, they are now under less pressure than before. Although they still have to respect their pension obligations, they can defer full financing.
Private-law pension funds have better funded status
About 26% of public-law pension funds had a cover ratio below 90%. 16% actually had less than 80%. Only 0.6% of private-law pension funds had a cover ratio of less than 90%. 85% of private-law pension funds and 40% of public-law pension funds had a cover ratio of 100% or higher. 110% is the upper funded status limit indicating adequate reserves for fluctuations in asset values and full capacity for risk. However, only 29.55% of private-law pension funds and 8.8% of public-law funds reported funded status of 110% or higher.
Source: Swisscanto; status: 31.3.2011
As at 31 March 2011, 60% of public-law pension funds and 15% of private-law pension funds were still underfunded. The proportion of underfunded public-law pension funds is thus considerably higher than in the case of private-law pension funds.