At the end of 2021, Swiss employment-based pension funds held 18.5% more assets than liabilities. According to recently released government data, by September 30, 2022, he had 0.5% more debt than he held assets.
The Swiss pension system has three tiers. The first tier is the public pension, known as AVS/AHV, which is funded by Social Security tax on income. The second, known as the second pillar, is a private pension pot funded by mandatory payroll deductions. Pillar 2 pension deductions are invested by regulated pension funds that operate within the rules specified by the government. However, most are not guaranteed by the government. The third and final tier is an optional tax credit that gives owners more flexibility to invest.
Data released on 21 October 2021 show that the financial situation of Switzerland’s second pillar pension funds could deteriorate rapidly. At the end of 2021, the average assets held by these funds represent 118.5% of current and future pension payments. By September 30, 2022, the same percentage had dropped to 99.5%. However, the report noted that the figure does not yet include the positive boost from the Swiss National Bank (SNB) raising its policy rate by 1.25 percentage points from early June 2022.
Also, not all Pillar 2 pension funds turned negative at the end of September. 44.3% had more than 100% coverage. And only 3.6% had coverage below 90%.
Unlike past market movements, recent market movements have affected a wide range of assets held by these pension funds. Stocks fell 21.9%, bonds 12.5% and property assets 11.4%. Exchange rates also fluctuate significantly, affecting the value of foreign currency holdings.
Market turmoil and exchange rate fluctuations have also hit the value of SNB’s assets. In his first six months of 2022, SNB recorded his CHF 95 billion loss. Six more months like this would leave the Swiss Central Bank almost empty of capital. It consists of reserves that are used to pay out profits. 204 billion to 103 billion Swiss francs. A further CHF 95 billion hit is reduced to CHF 8 billion.
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