Swiss Regulator: More Pension Funds To Be Underfunded After 2018 Volatility

The funding level of some Swiss pension funds is set to fall considerably after the equity market volatility of last year.

Preliminary calculations relating to funds from the cantons of Zurich and Schaffhausen were presented by the BVS, the regional supervisory body for Pensionskassen and foundations in these two cantons.

Speaking at the authority’s annual conference, Roger Tischhauser, director of the BVS, said that “a typical pension fund will report a lower funding level by 400 to 600 basis points because of the capital market developments” in 2018.

This year, Tischhauser said he expected “an additional 12 or more pension funds” under BVS’ supervision to report underfunding in their 2018 annual reports.

For 2017, the group of more than 750 pension funds supervised by the BVS showed a significant improvement in its funding position.

Compared to 2016, the number of underfunded schemes fell from 10 to four. The funds with shortfalls in 2017 were smaller schemes with combined assets of CHF4bn (€3.3bn).

Equity market volatility hit Swiss pension funds last year, a development also reflected in the industry indices compiled by UBS and Credit Suisse, as well as preliminary results published by Publica, Switzerland’s largest pension fund.

Nevertheless, Tischhauser said he was impressed by how the average pension fund had developed over the past few years.

In 2017, over 80% of all funds supervised by the BVS were 100% funded and around 50% had “already restocked the necessary funding buffers”, which had been emptied in the wake of the financial crisis, Tischhauser said.

He highlighted public pension funds, which “can look back at seven years of very hard work” since they were legally transformed into entities independent of the canton’s authority.

In total, the BVS oversees almost CHF300bn in occupational pension assets, more than one third of the total CHF850bn in the Swiss second pillar.

Collective pension funds as systemic risk factors

Tischhauser also defended proposals from Switzerland’s top finance regulator, the OAK, regarding new rules for collective pension funds, the Sammelstiftungen and Gemeinschaftseinrichtungen.

He contradicted critics who recently spoke out against further regulation for this sector within the second pillar. The OAK wants to introduce additional risk reporting requirements for such plans,

Tischhauser said a “consistent set of rules” was necessary for this sector.

“In this segment, which is of systemic importance, financial stability has to be increased and for this we need a unified regulatory framework,” he said.

He explained that, given the competition in this sector, collective pension funds on average “took more risks in their investments and made higher promises” than company pension funds not open to outside customers.