The financial situation of Swiss pension plans improved slightly in the second quarter of 2023. The first half of the year was good overall. This was due to the dynamic development of the financial markets.

Thanks to the good investment performance in the second quarter, the estimated funding ratios of Swiss pension plans rose from 112.5% in the previous quarter to 113.6%. The largest contributions to returns were made by equities, while the picture for bonds was somewhat mixed. These are the findings of the «Swisscanto Pension Fund Monitor» as of June 30, 2023, published by Zürcher Kantonalbank.

Yields have risen further

The pension funds covered by Swisscanto generated an estimated asset-weighted return of 1.43% during the second quarter of 2023. The asset-weighted return of all funds since January 1 is 4.13%, and the unweighted return is 4.08%. The return of each pension fund is extrapolated based on index returns. The calculations are based on the asset allocation of the pension funds as of December 31, 2022, and assume that no significant changes have been made to the allocation since then.

Shares made a positive contribution

While bonds had a mixed impact on total returns, the contribution of equities was surprisingly positive against the backdrop of a looming global recession. The decline in bond yields had a positive impact on the valuation of Swiss bonds. In contrast, the strength of the Swiss franc dominated global bonds and weighed on performance. Commodities recorded price losses of 10.9% in the first half of 2023, which is probably due to the gloomy growth prospects of the industrialized countries, Swisscanto summarizes the market development.

Funding ratios have stabilized

During the second quarter, the private pension funds were again able to benefit from the upward trend of the stock markets. With an estimated funding ratio of 113.6% (previous quarter: 112.5%), the funding ratios of private pension funds are still a long way from the highs seen at the end of 2021 (122.1%). Nevertheless, the picture has brightened somewhat for all pension funds after the dip at the end of 2022. As of the end of June 2023, 45.6% of private pension funds (previous quarter: 27.2%) and 13.5% of public pension funds (8.3%) had coverage of more than 115%. There is a shortfall in coverage of 1.3% (previous quarter: 9.2%) of private pension funds, 8.1% (previous quarter: 22.2%) of public pension funds with full capitalization and 88.9% (previous quarter: 87.5%) of public pension funds with partial capitalization. In this context, the good performance of the stock markets made the main contribution to the recovery of the coverage ratio in the second quarter. However, Swisscanto's experts warn: «However, against the backdrop of economic expectations, the stock market recovery is widely considered to be fragile.»