SLI Benchmarking Study 2019
Press release
SLI Benchmarking Study 2019
Zurich, 26 November 2019 – Over the past six years, employer savings contributions have risen. Although this indicates that companies and their pension funds are willing to combat the erosion of benefit levels caused by the interest rate environment, occupational pension benefits are tending to decline. This is confirmed by the latest Benchmarking Study from Willis Towers Watson, which compares the pension plans of the companies that make up the SLI.
Willis Towers Watson regularly conducts the SLI Benchmarking Study, comparing pension plans and the resulting benefits. The main characteristics of the Swiss pension plans provided by the companies included in the Swiss Leader Index (SLI) are analysed, and actual benefit levels are compared. The 2019 study involves 22 of the 30 Index companies.
Trend towards countermeasures and the limitation of pension options
Overall, the SLI Benchmarking Study shows that developments among the companies mirror what is happening in the market at large. The study also shows that the companies have further increased employer savings contributions over the last six years. The idea being to partially offset decreases in conversion rates which lowers the pension levels at retirement.
Alongside higher savings contributions and reduction in conversion rates, the trend towards further limiting pension options in an effort to reduce risk continues. In the last two years, in particular, more SLI companies have introduced so-called 1e pension plans. In 2017, only around 4% offered this option. Now in 2019, almost a quarter of companies do so.
Fig.: Type of pension plan and pension option. Source: Willis Towers Watson SLI Benchmarking Study 2019.
Differences in benefits persist
As early as 2017, the study showed that there are differences between the individual pension funds and companies with regard to various factors. These lead to significant differences in benefits, meaning expected retirement benefits under one fund can be as little as half those under another. Moreover, some of the companies examined insure the individual salary components in various ways. The SLI Benchmarking Study 2019 shows that most companies continue to consider variable salary components in their pension plans.
Fig.: Bonus included in covered salary (% of companies). Source: Willis Towers Watson SLI Benchmarking Study 2019.
With regards to contribution design, the trend towards increased flexibility of pension plans continues. In 2019, more than 90% of companies provide the option for the insured member to choose between a maximum of three different employee contribution rates. “This flexibility can make plans more attractive to insured members by enabling them to adapt their contributions to their personal circumstances, choosing to accumulate higher or lower retirement benefits”, Stephan Wildner, Director of Retirement Services at Willis Towers Watson, explains.
Lower valuation interest rates
Looking to the technical interest rates that are applied and implicitly credited to pensioners’ accounts, 2019 shows a changing situation since 2017. Technical rates have generally been between 1.5% and 2.5% (2017: between 1.75% and 3.0%), with an average of 2%. This considerable technical interest rate reduction coincides with noticeably lower distribution between the rates. “The reduction of the technical interest rate has a direct impact on the coverage ratio. This ratio is reduced whenever the technical interest rate is lowered due to increased pensioner reserves”, says Eileen Long, Director at Willis Towers Watson.
It appears retirement savings held by active participants are awarded lower interest credits than the respective technical interest rate applicable to pensioners. The average interest credit applied to active participants in 2018 was 1.63%. With this in mind, they too are benefiting from interest that exceeds the minimum required by law (1%). Nonetheless, it is worth bearing in mind that the higher technical interest rates applicable to pensioners contribute to the redistribution of assets to pensioners.
The conversion rates applicable to any assets have also decreased, currently between 4.4% and 5.7% (age 65). Looking at the last two studies, reductions are to be found across the board. This also holds true for the average value (5.2%), which has dropped continuously over the past few years. In 2013, conversion rates among 50% of examined companies came in at 6.3%. Six years later, no company applies a conversion rate of over 6%. Several companies are also taking the next step to reduce longevity risk, by requiring certain over-obligatory retirement savings to be paid out as capital.
Fig.: Average conversion rate applicable to over-obligatory assets, in % (age 65). Source: Willis Towers Watson SLI Benchmarking Study 2019.
“Many pension funds have lowered their conversion rates to align with the current reality”
Stephan Wildner
This calls certain political reform proposals envisaging a minimum conversion rate of 6% into question.”
What action can be taken?
Despite the efforts of various parties, occupational pension benefits are decreasing. Legislators can only influence this trend indirectly, which means decision-makers at Swiss pension funds must forge new paths. Many methods with which to do so, such as prioritising occupational pension provision as part of corporate strategy, foundation boards adjusting technical parameters, or modifying investment strategies, are at their disposal.
Background information to the study
The study by Willis Towers Watson examined the pension plans of 22 of the 30 companies included in the SLI (Swiss Leader Index) in 2019. The pension schemes of companies listed in the Swiss Market Index (SMI) or the SLI were first examined in 2009, then again, every two years. The analyses all focus on the structure of the individual companies' pension plans and the resulting benefits. All of the company pension plans (basic plans and any supplementary plans) were considered as a whole for the purpose of comparing benefits, insofar as the details were made available to Willis Towers Watson.
