Swiss pension funds saw returns of 8.7% in 2024, with funding ratios giving a better gauge of the schemes’ financial situation that increased on average, year-on-year, by 6 percentage points to 115.5%, according to consultancy PPCmetrics.
“The 8.7% return is an estimate. The effective average return may be somewhat lower due to illiquid investments and valuation lags. Nevertheless, 2024 was certainly an excellent investment year from the perspective of [Swiss] pension funds,” Stephan Skaanes, chief executive officer at PPCmetrics, told IPE.
Pension funds have yet to publish last year’s figures in full, but among the largest Publica recorded a return of 5.96% and AHV, the largest social security fund managed by Compenswiss, returned 6.81%, as of September last year. BVK recorded a return of 6.6%, as of October last year.
Swiss schemes achieved a return of around 17% (hedged) and around 28% (unhedged) by investing in global equities, with allocations to emerging market equities returning approximately 16%, Skaanes explained, adding that high returns of 5% were also achieved with investments in Swiss bonds.
This year the situation has changed, and the main concern for Swiss pension funds is the level of interest rates.
The yield to maturity of 10-year government bonds is already below 0.5% per year and this poses major challenges in the long term to finance, for example, the minimum interest rate on pension savings of 1.25%.
Swiss pension funds are applying higher interest rates on members’ savings as a result of solid investment returns and funding ratios.
“Swiss bonds were able to benefit from sharply lower interest rates [last year]. Unfortunately, this is also the downer in 2024: the low interest rate level will be a major challenge for Swiss pension funds in the long term,” Skaanes added.
Listed Swiss real estate funds also achieved a positive return last year, just under 18%, he said.
In general, Swiss real estate has already benefited from falling interest rates, while returns on foreign real estate investments were lower than returns achieved by allocating assets to Swiss property because interest rates abroad had a negative impact on the valuation of foreign real estate, the CEO explained.
Swiss scheme’s technical funding ratio, a gauge of the financial situation of a pension fund not considering certain parameters such as longevity risks or the effective level of capital markets’ interest rate, stood at 118.5% last year, up 7.7 percentage points year-on-year, according to PPCmetrics.
Taking future pension promises into account, the economic funding ratio of Swiss schemes increased on average by 5.4 percentage points last year to 109.0%, it added.
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