Press Release

Continuing positive trend for Swiss company balance sheet positions

Willis Towers Watson Swiss Pension Finance Watch - Q4/2017

January 17, 2018
| Switzerland

ZURICH, 17 January 2018 Swiss companies’ balance sheets continued to improve during the final quarter of 2017. Discount rates decreased by about 3 bps compared to the end of September 2017 and asset returns over the fourth quarter were positive. Overall the illustrative funded ratio index (i.e. ratio of pension assets to pension liabilities) increased by around 1.5 percentage points, as shown by Willis Towers Watson’s Pension Index, which increased from 102.5% as at 30 September 2017 to 104.0% as at 31 December 2017.

The pension fund index of Willis Towers Watson’s Swiss Pension Finance Watch is published quarterly by the consultancy and is based on the International Accounting Standard 19 (IAS19). The index gives an indication of how the general funding position under IAS19 has changed from quarter to quarter, as opposed to giving the typical funding ratio of Swiss pension plans.

Upward trend continues in Q4 2017

Due to positive asset returns during the fourth quarter, Swiss company pension balance sheets continued their steep and sustained rise since the low points around the middle of 2016. Looking at the 2017 calendar year Swiss corporate bond yields have been broadly flat since the 31 December 2016 company reporting date.

Adam Casey, Senior Consultant at Willis Towers Watson advises that “with IAS19 balance sheet levels reaching close to 10 year highs, companies should consider pension de-risking actions which are more easily done when pension plans are in better funding positions.”

From October to December, bond yields decreased by about 12 bps compared to the end of the last quarter, which resulted in a 0.8% increase in pension liabilities. The most significant impact on the pension index during the fourth quarter resulted from the positive asset return, with the net impact being positive. For the asset classes held by a typical Swiss pension scheme the asset return equated to 2.3% over the previous quarter (as represented by Pictet’s BVG-40 plus Index) which made for a very healthy 7.6% 2017 calendar year return.

“This positive development has also found its way into the statutory balance sheets of most pension funds. They should have more flexibility to manoeuvre compared to two or three years ago and should now make use of it,” says Samuel Neukomm, Pension Expert at Willis Towers Watson in Zurich.

Five recommendations for investors

“After another strong quarterly return for Swiss pension schemes, it is important to consider the main causes of this sustained bull run, namely the unprecedented central bank liquidity injections declining interest rates witnessed over the past few years,” says Michael Valentine, Investment Consultant at Willis Towers Watson in Zurich. “With this in mind we recommend that investors (1) understand portfolio exposure to downside and upside risks; (2) phase strategic risk changes over time; (3) diversify; (4) maintain liquidity in order to take advantage of new investment opportunities when major market over/undershoots occur; and (5) consider active management,” he advises.

Willis Towers Watson pension index - Switzerland

Chart showing Willis Towers Watson pension index - Switzerland

Background information to the study

Swiss Pension Finance Watch reviews quarterly how capital market performance affects pension plan financing in Switzerland. The study is part of the Global Pension Finance Watch from Willis Towers Watson which includes results back to 2000 for major retirement markets worldwide. The results are published quarterly with a focus on linked asset/liability results. It covers pension plans in Brazil, Canada, the Euro-zone, Japan, Switzerland, the U.K. and the U.S. The impact of capital markets on these pension plans is two-fold:

  • Investment performance on fund assets
  • Changes in economic assumptions on plan liabilities (as measured by international accounting standards)

Willis Towers Watson's model defines a benchmark pension plan that is intended to be representative of the pension liabilities and plan assets (including asset mix) that are typically found in each global market. The impact of movements in capital markets on assets and liabilities is combined to produce a Pension Index which reflects the movement in the funding level of the benchmark pension plan.