Pension institutions had an “extraordinarily negative” performance of -15.3 percent as of the end of September, according to a statement by the Occupational Pensions Supervisory Commission (OAK BV) on Friday. This is due to “ongoing market turmoil”. Accordingly, the average capital-weighted coverage ratio also decreased.
Unlike previous recessions, the underperformance this time affects all asset classes, such as equities, alternative investments, bonds, real estate and infrastructure investments.
On the basis of monthly monitoring, OAK BV forecasts the development of pension funds’ financial condition during the year and creates monthly projections based on the annual survey.
The annual survey is based on data from 1,324 pension funds with pension capital of approximately CHF 831 billion. Monitoring is limited to pension plans that do not have government guarantees and do not have a full insurance solution.
OAK BV justifies the negative financial development of pension funds with inflation putting pressure on the global economy, rising interest rates, the energy crisis, disrupted supply chains and the Covid-19 outbreak in China. Specifically, the average capital-weighted coverage ratio fell to 99.5 percent at the end of September, according to estimates. At the end of 2021, this value was still at 118.5 percent.
However, the significant increase in interest rates in September following the rate hike by the Swiss National Bank has not yet been taken into account in the valuation of liabilities.
However, OAK BV considers 480 pension plans to be underfunded by the end of the third quarter. This means that they will not be able to meet 100 percent of their retirement obligations. At the end of 2021, this only affected 13 institutions. Capital-weighted, this corresponds to a 55.6 percent deficit for Swiss pension funds.
OAK BV’s figures roughly match those of major banks. As of the end of September, UBS calculated an average negative performance of 11.14 percent for pension funds examined since the beginning of the year and 11.71 percent for the Credit Suisse pension fund index.
(SDA)