2 Executive Director s report

Transcription

1 Syngenta Pension Fund Short Report on the Year 2015

2 2 Executive Director s report The future of retirement provisions in Switzerland According to a study carried out by the University of St. Gallen on the topic of The Future of Retirement Provisions: Time for Action, Switzerland features as one of the best pension systems in the world. In order to secure the system in a sustainable way, however, changes will be inevitable this was also emphasized in the study. The latest statistical figures called BVG2015 published in December 2015 indicated that life expectancy continues to rise unabated. Life expectancy of 65-year-old men has increased between 2010 and 2015 by 0.8 years to 19.8 years. For women of the same age, life expectancy has increased in the same period by 0.5 years to 21.9 years. As a consequence, pension funds will have to be able to keep their existing pension promise for a longer period of time. At the same time, pension funds are increasingly lacking sufficient yields re- Development of funding ratio Development of investment performance quired for fulfilling their interest obligation (technical interest) on pension capital. Both factors result in additional capital being required in order to fulfill current pension promises at the expense of interest paid on the pension capital of active insured members. As a consequence of the extended pension coverage required due to an aging population and as a consequence of a lack in yield, there will be a shift in capital from active members to retirees which will lead to a reduction in future benefit levels. Within the three-pillar-system of Swiss social security, occupational pension schemes represent the fundamental element. If these are undermined by a pension promise that cannot be financed in the long term, the pension system as a whole will be jeopardized. If the study mentioned above suggests that there is a lack of commitment to carry out reforms, this is not least because of the dilemma between economic necessity and political enforceability. If the retirement pension system was to be aligned to current economic circumstances, severe cuts would be necessary both in terms of benefits and in financing which would be very difficult to enforce in view of the complexity of popular referendums. The attempt to bring the system on the right track with the current pension reform AV2020 cannot conceal the fact that this is only the first step in a process that will require additional cuts if we want to ensure that future generations will also benefit from a secured pension scheme. Executive Director Monika Schneider

3 Trust bodies 3 Board of Trustees period of office July 1, 2014 to June 30, 2018 Members Employee representatives Substitutes Aubin Olivier Bieri Peronnik (from ) Favre Sylvain (from ) Dollinger Daniel Leimgruber Walter McKerrow Fiona Michellod Pascal Merminod Philippe Nicolin Stéphane (until ) Sneiders Luc Rouiller Evelyne, Deputy Chairwoman Teige Verena (until ) Schweizer Regula Weingartner Basil Employer representatives Cherix Jacques Färber Martin (from ) Grüter Xaver Kuhn Christine (from ) Mäder Christoph, Chairman Meili Tobias Pintér Stefan Sartorius Timon Riebli Peter Schweizer Niclas (from ) Zürcher Nicolas Sozzi Dino Wüthrich Urs (until ) Investment Committee Zürcher Nicolas (Chairman), Member of Board of Trustees Schweizer Regula, Member of Board of Trustees Teige Verena, Substitute Member of Board of Trustees (until ) Bieri Peronnik, Substitute Member of Board of Trustees (from ) Meili Tobias, Substitute Member of Board of Trustees Nistler Christian, Investment Strategist Biedermann Daniel, External Investment Consultant Scherer Hansruedi, Investment Controller, PPCmetrics AG, Zürich Schneider Monika, Executive Director Fernández Juan Carlos, Deputy Executive Director Regulatory Authority BVG- und Stiftungsaufsicht beider Basel (BSABB) Eisengasse 8, 4001 Basel Auditor PricewaterhouseCoopers AG (Sutter Matthias) St. Jakobs-Strasse 25, 4002 Basel Expert in Occupational Benefits Schemes (Actuary) Libera AG (Wiedmer Matthias) Stockerstrasse 34, 8022 Zurich Executive Director Schneider Monika Fernández Juan Carlos, Deputy

4 4 Investments Capital markets in the year 2015 The year 2015 started with a bang for the investors: the abrupt abandoning of the Euro cap on January 15, 2015, caused the Swiss franc to temporarily appreciate up to CHF 0.85 per Euro and the Stock Market Index SMI to plunge by approximately 10 %. The subsequent introduction of negative interests of 0.75 % on sight deposits by banks with the Swiss National Bank SNB additionally nudged up bond prices. In the course of the year, these partly extreme price fluctuations calmed down again to a great extent. While the previous years had offered a favorable environment for institutional investors, both shares and bonds virtually offered zero returns in the year The Swiss Market Index (SMI) reflecting the Swiss blue chip companies managed to score a slightly positive annual return including dividends, whereas the Swiss Performance Index (SPI), which reflects a broader range including smaller companies, gained as much as 2.7 %. Global shares basically generated zero return. Bonds from emerging markets were again disappointing, losing nearly 15 % calculated on a CHF basis, which can partly be attributed to depreciating currencies. Real estate funds and shares listed in Switzerland increased by an average of approximately 6 %. Low or even negative interest rates as well as a scarcity of investment opportunities again prompted investors to turn to real estate, also referred to as the concrete gold. More specifically, the Swiss Bond Index (SBI) achieved an overall yield of 1.8 %. Long-term bonds in particular showed price gains due to a continued fall in interests; the interest rate for ten-year bonds of the Swiss Confederation dropped by 0.4 % to just below zero in the course of the year. Currency-hedged foreign currency bonds, on the contrary, displayed a slightly negative performance. Investment structure as of % 3 % 9 % 24 % 22 % 8 % 1 % 5 % 2 % 22 % Liquidity Bonds, CHF Bonds, foreign currencies Bonds, emerging markets Convertible Bonds Stocks, global Stocks, emerging markets Alternative investments Real estate, Switzerland Real estate, global Diversified commodity investments yet again represented the major disappointment of the investment year, losing approximately one quarter of their value. A decline in emerging markets combined with a tendency towards deflation currently creates the most unfavorable environment for this class of investments. Oil decreased by 40 %, gold by approximately 10 %. Investment strategy of the Pension Fund In view of the negative interest level, the proportion of Swiss bonds was reduced by approximately 5 % in the course of the year and investments largely redirected to global real estate and shares. Currency-hedged real estate investments were made especially in the USA, Canada, Australia, Germany and France. Rental yields in these countries are slightly higher than in the Swiss market; thus, adding them to domestic funds improves the risk spread. The share ratio was slightly increased by 2 %. Additional investments were made into global small and midcap companies.

5 5 Alternative investments feature a widely diversified investment range. With annual yields of approximately 7 %, infrastructure and private equity investments developed favorably. Insurance-linked securities yielded returns of about 3 %. The result of commodity investments is highly regrettable, suffering losses of about 18 %. For the first time, investments were made into a private debt fund. These funds issue direct loans to medium-sized companies. The Pension Fund hedges a substantial proportion of currency risks, with the unhedged currency exposure amounting to an average 15 %. This proved a decisive benefit for limiting the losses incurred as a consequence of the abandoning of the Euro cap. Investment category Investment result Average weighting Performance Bonds/Liquidity 43 % 1 % Stocks 27 % 4 % Real estate 10 % 6 % Alternatives 20 % 4 % The Syngenta Pension Fund achieved a return of 0.8 % in the year In comparison to other pension funds, this is slightly above average. According to the Swiss Pension Fund Association ASIP, the median return of the pension funds was 0.7 % in This result is especially gratifying and remarkable in view of the fact that the Syngenta Pension Fund exclusively invests into global shares (including emerging countries) and these investments generally posted lower yields than Swiss securities. On average, a third of Swiss pension funds equity investments were made in the domestic market. This structural disadvantage in the reporting year, which is also reflected in the strategic benchmark of 0.5 %, was eliminated thanks to tactical changes in the allocation of investments (increase of share proportion in case of price drops) and thanks to the strong performance of alternative investments investment environment The investment environment remains extremely challenging. In view of the continuing low level of interest, there is no money to be made with bonds any more. Certain investments into this category, however, will continue to be necessary in order to limit the risks of the portfolio. They help minimize losses in a negative market environment. Valuation levels on the stock markets are increasingly demanding. Moreover, corporate profits are slowing down in growth. All this increases the probability of setbacks on the stock market. Also, most central banks have already capitalized on potential benefits of lowering interest rates. Over the past years, low interests have fueled prices of virtually all investment categories, especially real estate. At the same time, risk premiums, i.e. future returns to be expected of nearly all investment categories have been gradually declining. In all likelihood, investors such as the Syngenta Pension Fund will in future have to be content with lower investment yields than in the past five years. The Investment Committee will ensure that the portfolio is kept as widely diversified as possible and that opportunities arising from expected market corrections will be tapped into.

6 6 Financial statement Assets in CHF Liquid funds Receivables Prepaid expenses Stocks Bonds Convertible Bonds Real Estate Alternative Investments Currency Overlay Total assets Liabilities in CHF Liabilities Deferred income Actuarial reserves for active members Actuarial reserves for retirees Technical provisions Fluctuation reserve Trust funds 0 0 Total liabilites

7 7 Pension Fund liabilities The pension capital of active members consists of the assets in the retirement plan and in the capital plan. The restructuring measures implemented as part of the AOL program resulted in a decline in active members and, thus, in the sum of pension assets. Active members Women Men Total In the 2015 annual financial statement, the actuarial reserves of retirees were aligned with the latest figures on life expectancy. This involved an increase in actuarial reserves financed through existing provisions. Pension recipients Retirement pensions Disability pensions Widow(er) s pensions Child pensions Total The relevant figures for calculating the actuarial reserves needed for financing current pensions are the statistic life expectancy (expected benefit period) and the technical interest rate (future interest on retirement capital). The technical interest rate is determined by the Board of Trustees and amounts to 2.5 % as per Life expectancy is established with the aid of statistical surveys in so-called technical bases. The latest technical bases applicable to the Syngenta Pension Fund called BVG2015 were published in December It is pleasing to see that the trend towards a longer life expectancy remains unbroken. To the Pension Fund, this development makes it necessary for the capital available upon retirement to last for a longer period of time in order to fulfil the promise of lifelong pensions. In order to be able to finance this extended benefit period, the Pension Fund is creating technical reserves to accommodate an increase in life expectancy. Pensions paid in CHF Retirement pensions Disability pensions Widow(er) s pensions Other pensions Total Age structure on

8 8 Operating result Operating result in CHF Contributions of employees / employer, deposits Vested benefits, repayment of early withdrawals for home ownership and divorce Inflow from contributions and deposits Pension benefits paid out Lump-sum benefits paid out Vested benefits, early withdrawals for home ownership and for divorce Outflow for benefits and early withdrawals Formation of actuarial reserves and technical provisions Contributions to security fund Net result from insurance part Net result from investments Other earnings Administrative expenditure Earnings surplus before release / formation of fluctuation reserve Release / formation fluctuation reserve Expenditure/earnings surplus 0 0 ( ) Expenses (+) Earnings

9 9 Interest on pension capital The pension fund s return on assets is used to finance interest on the capital of active insured members and pensioners as well as administration costs. The technical interest on retirees assets is set to 2.5 %. The interest on pension assets accrued by active members is determined at the end of each year based on the yield achieved during that year. Despite a performance in 2015 of only 0.8 %, the Board of Trustees agreed on an interest rate of 1.75 %. This corresponds to the minimum interest rate as defined by law (BVG) for compulsory occupational benefits. The interest rate was financed using fluctuation reserves. Fluctuation reserve and funding ratio The technical funding ratio of the Pension Fund amounts to % as per end of 2015 and thus showed a slight decrease as compared to the previous year (117.3 %). In view of the investment strategy, fluctuation reserves of 19 % are required, which corresponds to a target funding ratio of 119 %. In this method of calculation of the funding ratio as stipulated by law, liabilities are taken at their balance sheet value, discounting the funding ratio for current pensions with the technical interest rate of 2.5 %. It has been impossible for quite some time to reach this interest rate with low-risk investments such as federal bonds. In an economic context, liabilities are therefore calculated at the current market interest on risk-free investments. These fell below zero in the last year. This valuation of liabilities reflecting market conditions leads to an economic funding ratio, which for most pension funds is expected to be under 100%. Technical funding ratio according to art. 44 BVV2 The technical funding ratio indicates the percentage level at which a pension fund s liabilities are covered by assets. 100 percent corresponds to a full coverage. Economic funding ratio Contrary to the above-mentioned funding ratio according to art. 44 BVV2, liabilities are not discounted at the more stable technical interest rate but at a risk-free market interest rate on accrual basis. The interest rates of federal bonds may be taken as a basis for this risk-free interest rate. Development of lifelong pensions

10 10 Miscellaneous Exercise of voting rights With the Decree against Excessive Remunerations, pension funds are required to exercise their voting rights on shares of Swiss stock corporations they are holding in their portfolios. With effect from , the Board of Trustees introduced the Implementing Provisions on Exercising Voting Rights. The Pension Fund does not hold a Shares Switzerland portfolio but instead invests into a global index, which mainly constitutes of collective investments. For these investments, voting rights are executed by the corresponding fund. In view of the asset structure of the Syngenta Pension Fund, voting rights to be exercised only exist in the Swiss Real Estate mandate (shares of real estate companies). In spring 2016, the Syngenta Pension Fund exercised its shareholder s rights in the following companies and thereby approved all motions issued by the corresponding boards of directors: MOBIMO Holding AG PSP Swiss Property AG Swiss Prime Site AG Zug Estates Holding AG Allreal Holding AG Hiag Immobilien Holding AG PLAZZA AG UBS Group AG Asset management costs The asset management costs in the various mandates are comprised of a) direct costs: the respective asset manager charges the pension fund for the services provided. These costs are recognized as an expense in the income statement. Such investments are always considered as transparent. b) indirect costs: management costs for fund products are posted in the performance report. These investments can only be considered as transparent, if the costs are reported according to a TER calculation method as stipulated by the Supervisory Commission for Occupational Benefits (OAK BV). With the introduction of these transparency regulations, indirect costs are now also to be reported in the annual financial statements of the Pension Fund. If the TER report used by an asset manager and stated in his annual accounts does not comply with one of the calculation methods stipulated by the OAK, these investments are to be posted as intransparent investments even though the Pension Fund may have the relevant detailed information about the fund s cost structure. The Board of Trustees usually decides on whether to keep these investments considered as intransparent as part of the approval of the annual financial statement. This decision is not only influenced by cost considerations but the costs are also compared to the corresponding net revenue.

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12 Contact address Do you have any questions about your Pension Fund or do you need some expert advice? Don t hesitate to contact us: pensionskasse.info@syngenta.com Phone