IPE DACH Briefing: Swiss pension funds contemplate low interest rate scenarios

Low interest rates

Fixed-income investments have reached a new low, with less than a third of the assets of Swiss pension funds (31.6%) still invested in the asset class in 2023, despite rising interest rates in the past years, according to the latest risk check-up study published by consultancy Complementa.

Swiss schemes will likely ditch strategies to increase allocations in investment grade bonds in the near future, because of now declining interest rates, especially in Swiss francs, and hedging costs for investments in foreign currency bonds, according to Complementa.

Pension funds are already looking at a come-back of low interest rates, which could make them struggle to achieve target returns in the long term, said Stephan Skaanes, CEO at consultancy PPCmetrics.

Swiss vote on second pillar reform

On Sunday, Swiss savers will vote in a referendum to approve or reject the country’s reform of the second pillar pension system.

Innovation Zweite Säule (IZV), the association of Swiss second-pillar experts, and experts on personal pensions (Verwaltungsfachleute für Personalvorsorge, VVP) are among the latest in line to reject a reform proposal that is creating fractures within the pensions industry.

Particularly the lifelong pension supplement compensating members whose pensions are cut because of the reduction of the conversion rate used to calculate pension payouts is a topic unsettling the pensions industry and pension fund managers.

Germany’s own reform

Germany is also discussing the reform of its own second pillar pension system, with associations and stakeholders sending their statements to the Federal Ministry of Labour and Social Affairs (BMAS), asking to change the draft bill put forward by the government.

The Versorgungsanstalt des Bundes und der Länder (VBL), the supplementary pension provider for public sector employees, has warned of a “significant financial impact” resulting from expanding options to pay out severance packages in the second pillar reform proposed by the government.

The German association for corporate pension funds, Verband der Firmenpensionskassen e.V. (VFPK), has asked the government to clarify the 5% quota for infrastructure investments, and whether it is a new quota or is part of the share of mixed investments.

ESMA’s guidance

The guidance of the European Securities and Market Authorities (ESMA) on fund names has triggered the review of a concept for ESG investments in Germany’s defence industry, issued by several associations, including German fund industry association BVI.

The associations have drafted a plan for a so-called ESG target market concept (Zielmarkt Konzept) to assess under which conditions investors can allocate capital in the defence industry.

Austria

Assets under management of Austrian Pensionskassen increased by 1.55% at the end of the second quarter of this year to EUR 27.60 billion, on a 3.98% return in the first half of the year, according to the Financial Market Authority (FMA).

The investment performance calculated by the Oesterreichischekontrollebank (OeKB) was 1.25% in the second quarter and 3.98% in the entire first half of 2024. On average, returns over the past 10 years stood at 3.11%, 2.85% in the past five years, and 0.87% in the past three years.

Luigi Serenelli

IPE DACH correspondent