Falling share prices coupled with rising interest rates led to a negative trend for many Swiss pension funds in the third quarter of 2023. Funding ratios are on the decline.

According to projections by the Occupational Pension Supervisory Commission (OPSC), the average performance of pension funds since the beginning of the year is +3.3%. After a positive development of all investment categories until the middle of the year, performance weakened in the third quarter of 2023. Alternative investments (+9.6%), equities (+7.1%), bonds (+1.3%) and real estate (+0.1%) were able to maintain a positive level. Infrastructure investments (-5.8%), on the other hand, performed significantly negatively over the course of the year. According to OAK BV, however, the current situation does not allow any conclusions to be drawn about future developments until the end of the current investment year. In fact, the financial markets are characterized by high volatility. The already fragile geopolitical situation has come to a head with the latest developments in the Middle East, which is also having an impact on the financial markets.

The coverage ratio was still slightly higher at the end of the third quarter

The average capital-weighted coverage ratio as of September 30, 2023 was 109.6% (end of 2022: 107.0%) according to the projections of the OPSC. As a result, the capital-weighted proportion of Swiss pension funds with insufficient coverage fell slightly from 16.1% at the end of 2022 to 15.2%. However, the performance achieved by the end of September 2023 will not be able to significantly reduce the underfunding that arose in 2022. If pension funds are underfunded, i.e. if their funding ratio is below 100% at the end of the year, they must take measures to return to a funding ratio of at least 100% within five to seven years. The measures required for this depend on the extent and causes of the underfunding.

About monitoring

The OPSC estimates the development of the financial situation of pension funds in Switzerland during the year by means of monthly monitoring. Based on the annual survey on the financial situation of the pension funds, monthly projections are prepared which are based on the individual investment strategies of the pension funds and the actual development of the investment markets. The annual survey is based on data from 1'280 pension funds with pension capital of around CHF 852 billion. The monitoring is limited to pension funds without a state guarantee and without a full insurance solution.