Pension Risk Study on the coverage ratio of SLI companies
The internationally oriented study by Willis Towers Watson analyses the coverage situation of the pension liabilities in the balance sheets of the 30 leading SLI companies in Switzerland for all defined benefit pension plans in accordance with the international accounting standards IFRS and US-GAAP in Switzerland and abroad.
“Employers are prepared 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 liabilities of Swiss companies. In our experience and based on the findings of our studies, the issue of employee pension plans is an important one. Employers are prepared 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 liabilities of the SLI companies analysed increased by CHF 4.6 bn (+2.2%). In the same period, plan assets increased by CHF 8.8 bn (+4.8%), so that the average funding ratio for the SLI companies rose by 4% from 81% in 2018 to 85%. If the discount rates had not fallen further since 2018, the result would have been even more positive.
However, it is not appropriate to jubilate in the current environment. After all, the outbreak of the COVID 19 crisis shook up the investment markets in the first quarter of 2020 and wiped out much of the high investment returns of 2019. Although the second quarter of 2020 brought some recovery, it was not enough to offset the effect of the COVID-19 slump. This means that the outlook for 2020 is still cloudy at present.
Discount rates are expected to stagnate or even fall further in the long term due to the glut of money being spent by central banks to combat Covid19. In view of the ever-increasing burden on pensioners and low discount rates, companies should assume that the financing requirements of pension plans will continue to increase.
“Optimizing the investment strategy can help to increase the expected return on assets while maintaining the same level of risk. This can create better conditions to meet the challenges ahead.”
Peter Zanella,
pension fund expert, Switzerland
"The good investment results in 2019 should not make us careless, as the current development based on COVID-19 shows. It is therefore important to consider measures to ease the burden," says Peter Zanella, pension fund expert at Willis Towers Watson in Zurich. "The introduction of 1e plans or adjustment of the performance parameters and financing help to stabilize the obligations. Optimizing the investment strategy can help to increase the expected return on assets while maintaining the same level of risk. This can create better conditions to meet the challenges ahead," adds Zanella.
The average coverage ratio in (US) companies, summarised in the Willis Towers Watson Pension 100 Index, rose slightly from 86% to 88%. This means that Switzerland (2018: 81%, 2019: 85%) is now catching up somewhat on the US plans. The coverage ratio of DAX companies declined from 67% (2018) to 66%. Compared with other countries, Switzerland performs worse, mainly due to the much lower interest rate level resulting from the Swiss National Bank's negative interest rate policy.
Decrease in specific coverage ratios
The Pension Risk Study by Willis Towers Watson examines the pension obligations as well as the level and development of the pension expense of companies listed in the Swiss Leader Index (SLI). This index is made up of the 20 SMI companies and the nine largest of the 30 SMI Mid Cap stocks. The SLI thus contains the 30 most important stocks on the Swiss equity market and includes the country's leading listed companies.
Willis Towers Watson has analysed the disclosed pension liabilities of the SMI and SLI companies in 2019 in accordance with the international accounting standards IFRS and US GAAP. The results therefore differ fundamentally from the data published by Swiss pension funds under 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 to create a sound basis for the elaboration of specific measures for individual companies.
