IAS pension plan funding levels in Switzerland significantly lower over third quarter

Zurich, 16 November 2011 - Over the third quarter of 2011 the funding level of a typical Swiss pension plan, under international accounting principles, has declined by around 9 per cent, as the Swiss Pension Finance Watch, published quarterly by Towers Watson, shows. “This reduction reflects a combination of negative investment returns and decreasing discount rates in the third quarter” explained John Carter, Senior Consultant at Towers Watson Zurich. The combination of lower assets and higher liabilities resulted in a decrease to the benchmark Pension Index for the quarter, from 96.0 at 30 June 2011 to 87.2 at 30 September 2011.

Since the start of 2011, the Pension Index has fallen from 98.4 to 87.2 which also reflects a combination of negative asset returns and lower discount rates over that period. However, the results also showed that the Pension Index at the end of September 2011 is still higher than it was during the financial crisis in 2008 and 2009. At the end of March 2009 the Index stood at 82.3. “This reflects the fact that asset values remain at a higher level now than at the worst of the previous financial crisis which outweighs the increase in liabilities since then due to reduction in discount rates”, according to Carter. “Whereas the Pension Index shows the impact of financial markets on a benchmark pension plan with a fixed investment strategy, any plan which moved to a more risk-averse investment strategy after the previous financial crisis would have mitigated the investment-related impacts seen since then”, added Carter. 

Towers Watson Pension Index for Switzerland

Some employers may be looking to adopt generational mortality tables for the first time this year, which could further add to the liabilities for these companies at the year-end. “These financial market impacts, along with potential further increases in liabilities for some companies due to demographic assumption changes, mean that many employers could be facing a substantial increase in balance sheet liabilities over 2011”, said Carter, Towers Watson Zurich. “Such an adjustment to liabilities is likely to be painful for companies when they adopt the new mortality tables, however this reflects the reality of the ongoing demographic challenges faced by companies and plans in relation to long-term pension provision”, added Carter.

Background information on the study

Swiss Pension Finance Watch, reviews quarterly how capital market performance affects pension plan financing in Switzerland. The study is part of the Global Pension Finance Watch from Towers Watson which includes results back to 2000 for major retirement markets worldwide.The results are published quarterly with a focus on linked asset/liability results. It covers pension plans in Brazil, Canada, the Euro-zone, Japan, Switzerland, the U.K. and the U.S.

The impact of capital markets on these pension plans is two-fold:

• Investment performance on fund assets
• Changes in economic assumptions on plan liabilities (as measured by international accounting standards).

Towers Watson's model defines a benchmark pension plan that is intended to be representative of the pension liabilities and plan assets (including asset mix) that are typically found in each global market. The impact of movements in capital markets on assets and liabilities is combined to produce a Pension Index which reflects the movement in the funding level of the benchmark pension plan.