Three quarters of occupational pension funds in Switzerland do not have enough cash to cover payouts after months of stock market falls, a survey reveals.
The industry insists the situation is under control although one in four funds are now required to reduce benefits or raise contributions. But some observers are worried about the bleak economic outlook.
The report compiled by Swisscanto, one of Switzerland's largest pension funds, estimates that the average fund has only enough assets to cover 94.4 per cent of its future obligations. At the end of 2007 the average cash ratio stood at 112 per cent.
A ratio of more than 100 per cent signifies that the fund has more assets than liabilities.
A more worrying statistic is that a quarter of the funds surveyed have a cash ratio of 90 per cent or lower. This benchmark figure triggers compulsory remedial measures, such as insisting on higher contributions from employers and employees.
Swisscanto chief executive, Gérard Fischer, blamed the ongoing economic crisis for the SFr30 billion ($25.5 billion) hole in pension schemes.
"The text books simply do not foresee real estate, shares and alternative investments falling massively in value at the same time," he said at a briefing in Zurich on Wednesday.
Full picture disputed
However, Swisscanto head of asset management, Peter Bänziger, said it was only a matter of time before funds started to see an improvement.
"It is very serious but it is not a disaster. Given the current crisis, 95% of liabilities covered on average is a very reasonable figure. If the system takes the right measures and asset allocations can be held as they are then there is a good chance they can get back to over 100% in the next few years," he told swissinfo.
An intense debate has opened up in Switzerland about the true size and scale of the problems facing pension funds. Some observers insist that the industry is being too optimistic about the chances of assets recovering in value. Others believe funds under-estimate the life expectancy of policy holders, putting the deficit at closer to SFr60 billion.
Other voices compare the current problems to those successfully hurdled by the industry during the last financial downturn that started in 2001.
Independent pensions advisor Graziano Lusenti believes there is no cause for alarm at present. But he is concerned about the bleak economic outlook and warned that many people may have to dig deep into their pockets to bring their funds back up to break-even levels.
"What is more disturbing is the fact that the economic environment is much more difficult than in 2002-2003.
There was a lot more room then to instigate measures to jump-start the economy. You have to look forward, and the future now is not as bright as it was in 2003," he told swissinfo.
One particular concern is that some funds are more heavily weighted with older policy holders, making it more difficult to make up for shortfalls with increased contributions.
But Swiss pension schemes appear to be in better health than other countries where a greater proportion of assets are held in shares and riskier investments, according to pensions expert Roland Guggenheim from consultancy group Mercer.
"Swiss pension funds are probably performing better than those in Anglo-Saxon countries as there is better distribution of risk in asset classes and not so much based in stock," he said.
swissinfo, Matthew Allen in Zurich
Swisscanto surveyed 265 pension schemes (with SFr400 billion of assets) to determine their cash ratio on 31 December 2008. Of that number, 153 provided additional data used to build the Pension Fund Monitor containing more detailed information.
The studies revealed that the collective cash ratio of funds had fallen 17.6% to an average of 94.4% (112% in 2007).
This left some 76% of all funds short of cash cover at the end of last year compared to 10% in 2007.
On a more worrying note, 5.6% of the funds surveyed had fallen below the critical 90% cash ratio threshold that requires remedial action by law.
The performance of more than half of the funds fell between 10% and 15%. Nearly 5% suffered a performance drop of more than 20%.