SWITZERLAND - The funding levels of Swiss pension funds fell by 4% in the second three months of the year, research by Towers Watson shows.
Its quarterly Global Pension Finance Watch said the fall was due to negative asset returns in Q2.
The consultant used a benchmark pension plan designed to represent the liabilities and assets (including asset mix) found in a typical Swiss fund. The impact of movements in capital markets on assets and liabilities is then combined to produce a Pension Index which reflects the movement in the funding level of the benchmark pension plan.
The latest quarterly report said the benchmark discount rate also dropped by around 0.2% in Q2, leading to increased liabilities. The lower asset returns coupled with higher liabilities resulted in a decrease to the benchmark Pension Index for the quarter, from 100 at 31 March 2011 to 96 at 30 June 2011. As of June 30, the benchmark discount rate was 2.55%.
"This reduction reflects the fact that asset returns were slightly negative overall in the second quarter" explained John Carter, senior consultant at Towers Watson Zurich.
The Pension Index has fallen from 98.4 to 96 since the beginning of 2011, due to a combination of lower assets and discount rates over that period, Towers Watson said. The results also show that the Pension Index at the end of March reached a three year high since March 2008.
"This reflects a combination of relatively good investment returns in the prior quarters along with a relatively high discount rate", according to Carter.
Towers Watson also warned International Accounting Standard 19 policy changes will mean companies must show their pension plan's funding position directly on the balance sheet from 2013, a move which could have significant problems for sponsoring employers.
"Companies are recommended to review how their assets and liabilities are matched and expected to move over time," Carter added. "There may be significant volatility which can lead to substantial balance sheet impacts."