Swiss pensions accounting trends

Update on trends at 30 September 2023

Maribel Flores
Manager, PwC Switzerland

Decreases in Swiss corporate bond yields since the start of the year are likely to have slightly increased reported pension obligations. Together with a small increase in asset values, many companies reporting under IFRS and US GAAP could expect their net pension balance sheets to remain broadly comparable or even slightly worsened at 30 September 2023 compared to the end of 2022.

There has been volatility in Swiss equity values and small gains since the start of 2023. The Swiss National Bank continued to raise interest rates in 2023 with the latest increase to 1.75% in June 2023. Long-term Swiss Corporate bond yields ended the third quarter at 1.8% p.a., around 35 basis points lower than they were at the end of 2022. Typical pension funds saw modest positive asset returns of around 3% to 4% since the start of the year to the end of September.

Observed market practice on pension accounting assumptions at 30 September 2023

Assumption	Observed market practice at 30 September 2023		Observed market practice at 30 September 2022		Observed market practice at 31 December 2022
	Optimistic	Prudent	Optimistic	Prudent	Optimistic	Prudent
Discount rate	2.20%	1.85%	2.40%	1.95%	2.45%	2.15%
Inflation	0.50%	1.50%	0.50%	1.00%	0.50%	1.50%

These ranges cover schemes of all commonly observed durations and do not represent PwC’s internal acceptable ranges.

What is the expected impact on the pension net balance sheet at 30 September 2023 for companies reporting under IFRS or US GAAP?

Overall, we expect the net pension balance sheet of companies reporting under IFRS or US GAAP at 30 September 2023 to remain broadly comparable or to have slightly deteriorated since the end of 2022, depending on the specifics of the plan.

What does this mean for the assumptions under IFRS or US GAAP?

This means lower discount rates of around 25 basis points compared to the end of 2022. Discount rates are a key assumption for the measurement of Swiss pension plans reporting under IFRS or US GAAP. A lower discount rate leads to an increase in the value of the plan's obligations on the balance sheet. At the same time, most companies could decrease their interest credit rate assumptions to reflect lower expected asset returns in the future.

Inflation does not necessarily have an impact on most Swiss pension plans as benefits are typically not directly linked to inflation, but it influences salary growth assumption and future pension increases in payment.

We don’t expect to see major changes in demographic assumptions for companies who previously adopted the latest Swiss BVG/LPP 2020 tables. However, companies who have adopted entity specific assumptions based on their own experience should continue to monitor and review their assumptions.

In the current environment, only very few companies think about increases of pensions in payment because most pensioners were retired with relatively high conversion rates and the financial situation of pension funds does not allow for systematic pension increases. Whilst higher inflation may trigger a shift in this mindset, we expect many companies will maintain a 0% pension increase assumption for FY23

Jan Koller, Head of Pensions, PwC Switzerland

How companies can prepare on pensions topics ahead of year end accounting?

For SIX-listed companies, SIX Exchange Regulation intends to focus on compliance with IAS 19 (Employee benefits) and ASC 715 (US GAAP) requirements for the review of 2023 annual and interim financial statements. Companies should engage early in the process with their actuary and auditor to ensure compliance with pensions accounting policies and the disclosure requirements.

Companies that have undertaken an acquisition or any corporate restructuring during the financial year should discuss with actuary and auditors the impact on pensions accounting at an early stage.

Financial statements should fully disclose significant accounting judgements and adequately explain any plan changes and any other special events during the year

Stefan Haag, IFRS expert, PwC Switzerland

Contact us if you

You need an IFRS or US GAAP valuation of your pension plan for financial reporting purposes
You have questions about your assumptions, methodology or accounting policies used in your pension accounting valuation
You need support with your global accounting consolidation of pension plans
You need support with your pension disclosures

Swiss Market Study on 1e pension plans 2023

Learn more. Interested to learn about the key findings of our recent survey? Building on our past surveys, we again asked the largest providers of Swiss 1e pension funds about their offerings and future expectations for the market.

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