The funding ratios of Swiss corporate pension funds fell to a similar level to two years ago in the last quarter of 2023, with falling discount rates, and despite positive returns.
Funding ratios stood at 119.9%, as of the end of December last year, down from 125.6% recorded at the end of September, according to WTW’s Pension Index.
The deterioration of corporate pension funds’ funding ratios was caused mainly by falling discount rates, which led to liabilities increasing by 8.7%, WTW said in its latest quarterly Swiss Pension Finance Watch.
Falling bond yields on market expectations that central banks might start cutting interest rates this year have had an impact on discount rates and corporate pension plans.
Therefore, WTW is recommending companies, particularly those reporting quarterly, to closely monitor changes in discount rates this year, more so than they have over the last two years, it said.
Adam Casey, head of corporate retirement consulting at WTW in Zurich, said: “Companies will have to accept a weakening of their balance sheet from their pension arrangements since last year due to rising liabilities.”
He added: “However, they can take relief in the fact that increases in the local pension fund coverage ratio over the last year means a reduced risk of additional contributions for underfunding now and in the future.”
Better returns recorded last year, and a stable level of liabilities, mean, however, that corporate pension funds find themselves in a more solid position to face future challenges, WTW added. In the last quarter of last year, pension funds more than doubled returns achieved at the end of Q3, according to the WTW Pension Index.
With geopolitical risks, a recession not priced into markets, possibly flawed expectations, and still higher interest rates, WTW expects pension funds to keep their portfolios diversified, said WTW head of investment Alexandra Tischendorf.
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