SLI Benchmarking Study 2021
ZURICH, October 26, 2021 - There finally seems to be a light on the horizon; for the first time in years, projected retirement pensions from pension funds have not fallen but rather have stabilised. In addition, individualisation trends are becoming stronger; while various elective savings plans are already commonplace and offered by virtually all companies surveyed, the so-called 1e plans are still rather rare, but are spreading strongly. This has a positive impact on the expected savings capital at retirement. This is shown by the latest benchmarking study by Willis Towers Watson, which examines the pension plans of the companies included in the SLI.
With the aim of comparing pension plans and the resulting benefits, Willis Towers Watson regularly conducts the SLI Benchmarking Study. It analyses the main features of the Swiss pension plans of the companies included in the Swiss Leader Index (SLI) and compares the effective level of benefits. In 2021, 24 of the 30 companies included in the index are included in the study.
Falling investment returns, rising life expectancy - these two factors have been the primary reasons for falling conversion rates in past years. Many pension funds have drastically reduced these in the past or have announced that they will do so in the coming years. Without appropriate compensatory measures, this development would lead to significant pension losses. However, the trend seems to have finally been broken; the conversion rates of the pension plans examined have not fallen any further since the last study and are stagnating at an average of around 5.2%. Coupled with stable savings contributions, this means that projected retirement pensions have not declined further. This is very good news and the outlook seems positive. According to the current professional guideline for pension fund experts, the upper limit for the technical interest rate has increased since last year, which gives reason to hope that conversion rates will not fall further, at least for the time being.
Individualisation is have in the past been more of a third-pillar issue. Nevertheless, two trends in particular have been key topics in the second-pillar in recent years, with real added value for insured persons. On the one hand, more and more elective savings plans are being offered, whereby insured persons can choose their contributions from a maximum of three contribution scales. This allows them to pay more or less into the pension fund depending on their financial situation. Elective savings plans also make sense for tax optimisation, as higher contributions also create more purchase potential. In the current study, 90% of companies offer such elective savings plans, compared with only 60% six years ago.
The second individualisation trend examined is the so-called 1e plans, which are on the rise. Every third company surveyed now offers these plans; a few years ago there were hardly any.
1e plans are pension plans in which the insured persons themselves can choose from a range of investment strategies and thus have a say in how their assets are invested. The investment performance is then passed on directly to the insured, so the Board of Trustees does not decide on the interest rate. This offers enormous opportunities for higher returns, but also carries the risk of losses. This is because any negative returns are borne by the insured members themselves, whereas in traditional pension plans negative interest credits are not allowed. In their younger years, insured persons tend to invest in more aggressive portfolios and then gradually reduce the investment risk as their time horizon changes. As a result, significantly higher returns are expected on average than in classic pension plans. It is also important to note that such 1e plans may only be offered for high salary components starting at around CHF 130,000. A solid basic pension is therefore guaranteed for all insured persons.
Will future generations now have to reckon with lower projected retirement pensions? No, due to several aspects. On the one hand, we think that the lower conversion rates in recent years mean that there is significantly less redistribution between pensioners and active employees. This leads to a higher possible return on savings and thus higher pensions. As a calculation example: With a contribution period of 40 years and constant contributions, an additional interest rate of 1% results in a 23% increase in savings assets. This is a good way to compensate for lower conversion rates. In addition, a significantly higher interest rate can be expected with 1e plans than with classic pension plans, and elective savings plans allow insured persons to pay more into the pension fund. Therefore the future may not be so bleak. However, this requires action on the part of pension funds, the individual companies and also the insured persons themselves.
The study by Willis Towers Watson examined the pension plans of 24 of the 30 companies included in the SLI (Swiss Leader Index) in 2021. Since 2009, the pension fund benefits of the companies included in the SMI and SLI have been examined every two years. Both the previous and the new analysis focused on the structure of the pension plans of the individual companies and the resulting benefits. All pension plans of the companies (basic and any supplementary plans) were considered in their entirety for the performance comparison, insofar as they were made available to Willis Towers Watson.
Company balance sheet positions for reporting their Swiss pensions maintained their relatively strong position during Q3.
The development of the investment markets in the first half of the year is positive for 2021.
Company balance sheets in respect of Swiss pensions started 2021 strongly.
Swiss companies’ pension balance sheets received an unexpected uplift in Q4.
