Good returns make Swiss pension funds fitter
Good returns on the capital markets are a boon. They confirm the importance of successful asset management in the pension system, enable pension funds to build up reserves and have a positive effect on the coverage ratio. The average coverage ratio of pension funds even climbed to record levels in 2020, as the Swiss Pension Funds Study by Swisscanto Pensions Ltd. shows. For the first time since the start of the study, the threshold of 115 percent has been exceeded for private-sector funds. This provides a safety cushion to hedge an average equity portfolio and other price risks.
Significantly larger value fluctuation reserves
Value fluctuation reserves have also increased enormously. 69 percent of all pension funds increased their target value fluctuation reserves to at least 75 percent. For comparison: in 2018, the figure was 27 percent, and in 2019 it was 63 percent. Pension funds from private employers (PA) accounted for the highest value fluctuation reserve at 78 percent of the target value, compared with 72 percent in the previous year. For public employers' pension funds (OA), the figure is 40 percent, after 29 and 6 percent in 2019 and 2018 respectively. With the greatly improved financial basis, more free funds are available to active insurance members. This is a welcome development given the redistributions in recent years.
Large difference in returns across pension funds
Generating good returns makes it possible to maintain the level of benefits of the pension funds and reduce the subsidisation of pensioners by the younger generations. However, there are large differences in returns between pension funds, as the Pension Funds Study further illustrates. In 2020, the gap ranged from –6.5 percent for the worst to +12.3 percent for the best fund. The spread was also similar in previous years. On average over the last five years, the return difference between the top 10 percent and the bottom 10 percent per year is almost 3 percentage points, or cumulatively around 15 percentage points. The study also notes that the differences in returns do not arise due to a structurally lower risk capacity.