Pension funds with good performance and higher coverage ratio
Published: Tuesday, May 7th 2024, 12:34
Updated At: Tuesday, May 7th 2024, 12:34
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According to the Supervisory Board, Switzerland's pension funds achieved an average return of 5.2% in 2023. As a result, the coverage ratios of funds without a state guarantee rose to 110.3% by the end of the year, while those of public-law funds rose to 84.2%. The interest rate on retirement assets rose from 1.9% to 2.31%.
After 2022, which was characterized by a strongly negative investment performance and a decline in coverage ratios, the financial situation of the institutions was positive again overall in 2023, said Vera Kupper Staub, President of the Occupational Pension Supervisory Commission (OPSC), at the presentation of the latest figures on the financial situation of occupational pension funds at a press conference on Tuesday.
In the previous year, the institutions without a state guarantee lost 9.2% on their investments, while those with a state guarantee lost 8.2%. In 2023, they partially made up for the losses. The improved situation can be attributed to the investment results on the bond and equity markets.
However, it is premature to speak of a return to stability, noted the Chair of the OAK BV. Geopolitical tensions would tend to increase. Caution was required in all decisions concerning benefits or investments. The institutions must continue to strengthen their reserves.
The President of the OAK BV acknowledged that the 2nd pillar is repeatedly criticized in the public debate. The finger is often pointed at the level of benefits and the costs. However, the trust of insured persons in the pension system is of fundamental importance. However, the improved financial situation of Swiss pension funds does not absolve them from further consolidating their reserves.
The Swiss Federation of Trade Unions (SGB) reacted promptly: "The pension funds are swimming in reserves and less and less money is reaching the insured. Their salary deductions are 14 percent higher than 15 years ago, but their monthly pension has fallen by an average of 300 francs." The SGB has therefore submitted a referendum against the reform of the Occupational Pensions Act (BVG). The people are expected to vote on the BVG reform in the fall.
Still seven percent underfunded
According to the OAK, the increased coverage ratios meant that seven percent of private occupational pension funds were still underfunded, compared to 16 percent in 2022. As at the end of 2023, 93 percent of pension funds without a state guarantee and without a full insurance solution had a coverage ratio of at least 100 percent (previous year: 84 percent).
According to the 2020 report, the institutions stopped the cross-subsidization of pensions by active insured persons. However, the problem of cross-subsidization remains unresolved for pension funds that only operate in the mandatory area and are required to strictly apply the statutory conversion rate.
Market developed positively
Both the bond and equity markets delivered a positive result in 2023, partially offsetting the previous year's losses. The average net asset performance generated by the pension funds was therefore positive in the reporting year. It amounted to 5.2% for institutions without a state guarantee and without a full insurance solution (previous year: - 9.2%) and 5.2% for institutions with a state guarantee (previous year: - 8.2%).
Due to the positive average performance, the average interest rate on the retirement assets of active insured persons also rose from 1.90 % at the end of 2022 to 2.31 % at the end of 2023.
Modernization of supervision
Kupper Staub went on to say that it was time to tackle the necessary modernization of the legal system for monitoring and supervising institutions. Parliament had commissioned an evaluation in this regard. The emergence of complex collective and communal facilities operated by profit-oriented service companies is currently not being taken into account.
These have potential conflicts between the various interests, as Laetitia Raboud, the new head of the Secretariat of the OAK BV, said. Good governance is therefore more difficult to implement. In 2024, the OAK BV will define new minimum requirements for the supervisory activities of the competent cantonal bodies.
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