Pension Risk Study on the coverage ratio of SLI companies
ZURICH, July 8, 2021 - Following a rapid recovery from the COVID 19 crisis, the average funding ratio of pension obligations in the SLI companies at the end of the 2020 financial year is only around 1% below the previous year's level.
The internationally oriented study by Willis Towers Watson analyses the funding situation of the pension obligations in the balance sheets of all defined benefit pension plans of the 30 leading SLI companies in Switzerland in accordance with the international accounting standards IFRS and US-GAAP, both within and outside Switzerland.
“According to our experience and the findings from our studies, retirement provision is an important topic among employees. Employers are ready to develop measures to meet future challenges.”
Stephan Wildner | Head of Retirement, Switzerland
"Every year we monitor the markets and examine the impact on the pension obligations of Swiss companies. According to our experience and the findings from our studies, retirement provision is an important topic among employees. Employers are ready to develop measures to meet future challenges," explains Stephan Wildner, Head of Retirement at Willis Towers Watson in Zurich.
Compared to the previous year, the pension obligations of the SLI companies analysed decreased by CHF 1.0 billion (-0.1%). In the same period, the plan assets increased by CHF 3.0 billion (+1.4%), so that the aggregate funding ratio for the SLI companies rose by 1% from 92% in 2019 to 93% (2020). The average funding ratio, in which all companies are equally weighted, fell slightly from 85% to 84%, however, because new companies included in the index have a lower funding ratio than those that have left and because figures are available for 2 companies at the height of the COVID 19 crisis as of 31 March 2020.
After 2020 was an overall positive stock market year despite the COVID 19 crisis, the stock markets really take off in the first half of 2021. "On the one hand, this development reflects the still record-low interest rate environment, the lack of alternatives to equity investments as well as the recovery of the real economy after the easing of measures to combat the pandemic. On the other hand, it raises the question of what will happen when central banks have to step off the gas to prevent the rise in inflation that is on the horizon," stresses Peter Zanella, pension fund expert and senior director at Willis Towers Watson in Zurich.
Due to the observed inflation trends and the already record-low key interest rates of the central banks, it is to be expected that the discount rates will remain low, but should also rise again in the medium term. For this reason, and due to a slowdown in the increase in life expectancy observed in various countries, it is possible that the financing requirements of pension plans will increase less than previously feared in the medium term, despite the ever-increasing burden on pensioners. "These developments as well as the good investment results of recent months should nevertheless not make us careless. It remains important to consider relieving measures in order to be able to react flexibly and on our own at any time to unexpected crises," says Peter Zanella. "The introduction of 1e plans or the adjustment of the benefit parameters as well as the financing continue to help stabilise the obligations. The optimisation of the investment strategy, taking into account further criteria such as sustainability and ESG trends, can serve to increase the expected returns on assets while maintaining the same level of risk. This can create better conditions for both employees and employers to meet the challenges ahead," adds Zanella.
“It remains important to consider relieving measures in order to be able to react flexibly and on our own at any time to unexpected crises.”
Peter Zanella | pension fund expert and senior director, Switzerland
The average funding ratio in (US) companies, summarised in the Willis Towers Watson Pension 100 Index, has risen from 88% to 90% (2019 vs. 2020). This means that Switzerland (2019: 85%, 2020: 84%) is once again falling slightly behind the US plans. The coverage ratio of DAX companies also recorded a decline from 66% (2019) to 65% (2020). Compared to other countries, Switzerland performs worse, which is mainly due to the much lower interest rate level as a result of the Swiss National Bank's negative interest rate policy.
The Pension Risk Study by Willis Towers Watson examines the pension obligations as well as the amount and development of the pension costs of the companies in the Swiss Leader Index (SLI). This index is made up of the 20 SMI companies and the nine largest stocks of the 30 SMI Mid Cap stocks. The SLI thus contains the 30 most important stocks on the Swiss stock market and includes the country's leading listed companies.
In 2020, Willis Towers Watson analysed the disclosed occupational pension liabilities of SMI and SLI companies according to the international accounting standards IFRS and US GAAP. The results therefore differ fundamentally from the data as published by Swiss pension funds according to Swiss GAAP FER26.
The aim of the Pension Risk Study by Willis Towers Watson is to gain an overview of the situation of Swiss companies and thus create a sound basis for the development of specific measures for individual companies.
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