Article in “SpringerOpen”, June 2022

Swiss pension funds: funding ratio, discount rate, and asset allocation

The funding ratio is a financial indicator to measure the viability of pension funds. The paper analyzes how Swiss occupational pension funds’ technical discount rate and asset allocation are related to the funding ratio. The paper shows that funds with weaker funding ratios apply higher rates to discount future pension liabilities what points toward euphemistic discounting. Further, weaker funded pension funds invest less in equities — with the exception of pension funds below the regulatory minimum threshold. The latter invest more in equities than funds above the threshold, which points to gambling for resurrection. The findings question the funding ratio as a transparent measure for pensions’ sustainability and unfold the regulatory environment’s disincentives.

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