Strong investment performance saw Swiss pension funds experience a marked improvement in their cover ratios during 2012, according to Swisscanto’s latest annual survey.

Average investment yields reached 7.2 per cent last year, according to statistics gathered from 343 Swiss pension funds.

Private-law funds increased their asset weighted cover ratios from 103 per cent to 109 per cent at the end of 2012. The ratio for public law pension funds with full capitalisation increased from 95 per cent to 100 per cent.

Only 8% of private-law funds had a coverage shortfall at the end of 2012, compared with 26% a year ago. Just over half of public-law funds with full capitalisation were still considered to be slightly short of cover, although the majority of these had a cover ratio of more than 90%.

Despite this improvement, Swisscanto revealed that many pension funds have not reached full risk capacity, limiting the extent to which they can invest pension assets.

Intended target values of a 100% cover ratio plus 16% reserve have not been met by all funds. Private-law funds are on average 7 percentage points short of the target, while public law funds with full capitalisation are 16 percentage points short on average.

Swisscanto said pension institutions have reconsidered their approach to securities lending following the global financial crisis from 2008.

Smaller pension institutions have withdrawn from securities lending as a result of counterparty risk, Swisscanto said, and larger funds with over 1bn Swiss francs in assets have also ceased the practice.

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