Q1 pulls down Swiss corporate pension scheme funding by 7%-points

first_imgThe decline of the value of fixed assets led the WTW pension index to drop below 100% for the second time in three years, according to the consultancy. The negative investment return in the first quarter largely offset the excellent investment performance developments in 2019.WTW’s pension fund index gives an indication of how the general funding position under International Accounting Standard 19 has changed from quarter to quarter.Valentine said Swiss schemes were well diversified compared with other countries, with their relatively low equity exposure that provides a degree of downside protection.Pension funds were likely to have to revisit their ALM studies due to the coronavirus crisis, with its financial impact and uncertainties, changing the perception of future risks and how to manage them: “In the light of these changes, it will be necessary to revisit the assumptions underlying a pension scheme’s existing investment strategy,” said Valentine.WTW estimates that the wholesale closure of businesses will result in an immediate drop in real GDP in the US and Europe of 10-13% by the end of June, more than double that the fall recorded during the crisis in 2008/9, which stood at around 5%.Valentine added: “To simplify greatly, asset risk premia are higher and risk-free rates are lower and this has implications for investment strategy.”WTW recommended that pension funds have a long-term investment view by diversifying exposure to risk premia.“The current crisis poses potential shorter-term challenges relating, for example, to rebalancing and meeting immediate liquidity requirements,” said Valentin, adding that for this reason, engaging in efforts to “call the market” was not advisable. The funding level of Swiss corporate pensions schemes dropped seven percentage points in the first quarter of this year to 98%, compared with 105% at the end of last year, according to Willis Towers Watson’s latest pension index for the country.“This was a less severe drop than an asset-only view would have produced, thanks to a compensatory pick-up in corporate bond yields used to value the liabilities,” Michael Valentine, investment consultant at Willis Towers Watson Switzerland, told IPE.Swiss pension funds had a solid starting position earlier this year, but successive fluctuations in the market meant a loss of around 75% of the return on assets generated in the previous year, according to WTW’s Swiss pensions finance update.The COVID-19 crisis had negative effects on the pension positions on Swiss companies’ balance sheets.last_img

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