annual survey of accounting assumptions for fiscal … · this report presents the results of...

Prepared by Aon Retirement and Investment

Annual Survey of Accounting Assumptions for Fiscal Year End 2017 – Switzerland

Aon Switzerland Ltd | Retirement and Investment 2

About this Material

This report presents the results of Aon’s annual survey of accounting assumptions used for employee benefit plans at 2017 year-end for Switzerland. The results of this survey may be useful to companies when setting preliminary assumptions for 2018 year-end and budgets for 2019;

Aon conducted this survey of fiscal 2017 year-end accounting assumptions by gathering assumptions used by our clients. Similar to last year, we have focused on economic and demographic assumptions that companies select under ASC 715, IAS 19 or IPSAS 39;

The results are for companies with fiscal years ending on 31 December 2017, and the averages shown are as of the end of 2016 and 2017 for post-employment plans as well as in-service benefits such as long-service leave or jubilee awards;

While information about what others are doing can be helpful, the circumstances at one organization may differ in a material way from those at another. As such, decisions should be made based on each organization’s relevant facts and circumstances and not solely on the results of a survey;

If you would like an update on current economic and demographic indices or the current status of changes in accounting standards, please contact your local Aon consultant.


Economic Discount Rate Inflation Expected Return on Plan

Assets Interest Credited to

Account Balances Salary Increase Rate Pension Increase Rate Increase in Social Security

Limits

Demographic Mortality Disability Incidence Turnover Early Retirement Lump Sum Payments on

Retirement Proportion of Members

with Spouse’s / Partner’s Pension

Assumptions

Overview


Economic Assumptions


Discount Rate

0.0% 3.8%

63.9%

29.7%

2.5% 0.0%

10.5% 15.0%

67.3%

7.2% 0.0% 0.0%

0%

20%

40%

60%

80%

100%

< 0.30% 0.30% - 0.49% 0.50% - 0.69% 0.70% - 0.89% 0.90% - 1.09% >= 1.10%

2017 2016

Source: Internal Aon Survey for 2017 Fiscal Year-End

2017 average = 0.64% (158 responses) 2016 average = 0.52% (153 responses)

Average assumption increased by 0.12% from 0.52% at 31.12.2016 to 0.64% at 31.12.2017;

Around 88% established the discount rate based on a yield curve and the expected cash flows of the plan. Of these, about 85% used a single equivalent rate while about 15% used a full yield curve approach.


Inflation

4.5% 3.2%

87.0%

4.5% 0.6% 0.0%

7.4% 3.4%

80.5%

5.4% 2.7% 0.7% 0%

20%

40%

60%

80%

100%

< 0.75% 0.75% - 0.99% 1.00% - 1.24% 1.25% - 1.49% 1.5% - 1.74% >= 1.75%

2017 2016



Average assumed inflation of 1.0% remained unchanged at 31.12.2017 compared to 31.12.2016;

Around 87% assumed from 1.00% – 1.24% at 31.12.2017 compared to 81% at 31.12.2016.


Expected Return on Plan Assets

26.3%

2.6%

26.3% 23.7%

10.5% 10.5%

21.6% 13.5%

29.7%

13.5% 16.2%

5.4%

0%

20%

40%

60%

80%

100%

< 1.50% 1.50% - 1.99% 2.00% - 2.49% 2.50% - 2.99% 3.00% - 3.49% >= 3.50%

2017 2016



Average assumption for the following year increased by 0.1% from 2.2% at 31.12.2016 to 2.3% at 31.12.2017;

For fully insured plans, average expected return on plan assets increased from 1.4% to 1.5%;

For the remaining plans, average expected return on plan assets increased from 2.6% to 2.7%.


Interest Credited to Account Balances

19.0%

54.2%

10.5% 8.5% 2.6% 5.2%

19.0%

38.8%

24.5%

8.2% 4.1% 5.4%

0%

20%

40%

60%

80%

100%

< 1.00% 1.00% - 1.24% 1.25% - 1.49% 1.50% - 1.74% 1.75% - 1.99% >= 2.00%

2017 2016



Average assumption decreased by 0.1% from 1.2% at 31.12.2016 to 1.1% at 31.12.2017;

For reference, the minimum BVG interest crediting rate remained unchanged at 1.0% for 2018 in comparison to 2017.


Salary Increase Rate

3.9%

42.2% 40.3%

12.3%

1.3% 0.0% 6.7%

38.0% 42.7%

11.3%

1.3% 0.0% 0%

20%

40%

60%

80%

100%

< 1.00% 1.00% - 1.49% 1.50% - 1.99% 2.00% - 2.49% 2.50% - 2.99% >= 3.00%

2017 2016



Average assumed salary increase rate of 1.4% remained unchanged at 31.12.2017 compared to 31.12.2016;

Around 82% assumed from 1.00% – 1.99% at 31.12.2017 compared to 81% at 31.12.2016;

The average premium in excess of inflation (i.e. merit component) was around 0.4%.


Pension Increase Rate

91.6%

5.8% 1.3% 0.6% 0.0% 0.6%

90.7%

4.7% 2.0% 2.0% 0.0% 0.7% 0%

20%

40%

60%

80%

100%

0.0% 0.01% - 0.24% 0.25% - 0.49% 0.50% - 0.74% 0.75% - 0.99% >= 1.00%

2017 2016



Average assumed pension increase rate of 0.0% remained unchanged at 31.12.2017 compared to 31.12.2016;

Around 92% assumed no future pension indexation at 31.12.2017 compared to 91% at 31.12.2016;

For those assuming a future pension indexation, the average rate is around 0.25%.


Increases in Social Security Limits

2.6% 3.9%

51.6%

41.9%

0.0% 0.0% 5.3% 4.0%

41.3% 43.3%

5.3% 0.7%

0%

20%

40%

60%

80%

100%

< 0.75% 0.75% - 0.99% 1.00% - 1.24% 1.25% - 1.49% 1.5% - 1.74% >= 1.75%

2017 2016



Average assumed increases in social security limits of 1.1% remained unchanged at 31.12.2017 compared to 31.12.2016;

Around 52% assumed from 1.00% – 1.24% at 31.12.2017 compared to 41% at 31.12.2016;

The average premium in excess of inflation was around 0.1%.


Demographic Assumptions


Mortality

5.9%

3.9%

87.6%

2.6%

2.5%

55.7%

40.5%

1.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

BVG15 (CMI)

BVG15(Menthonnex)

BVG15 (Periodic)

2017 2016


2017 (158 responses) 2016 (153 responses)

In response to research and developments by Aon, a broad switch from determining future mortality improvements using the 2015 Menthonnex model to the model developed by the Continuous Mortality Investigation (CMI) has occurred;

Among those now using the CMI model to determine future mortality improvements, an average long-term rate of improvement of around 1.5% was observed.


Disability Incidence

3.9%

88.9%

7.2%

1.9%

28.0%

70.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

BVG15

BVG15 Adjusted

2017 2016



In response to research performed by Aon, a broad switch to applying an adjustment factor to the standard BVG 2015 disability rates to better reflect the degree of disability has occurred;

The standard table implies that all participants will receive full disability benefits, which is not always the case. Taking into account the degree of disability in the calculations results in a better estimate of the effective costs arising from the occurrence of disability;

For those applying an adjustment factor, the average factor used to scale the rates of the standard BVG 2015 disability table is around 80%.


Turnover

15.7%

62.7%

21.6%

12.1%

66.2%

21.7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

BVG15

BVG15 Adjusted

2017 2016



Around 66% assumed BVG 2015 turnover at 31.12.2017 compared to 63% at 31.12.2016;

Around 22% assumed adjusted BVG 2015 turnover at 31.12.2017 and 31.12.2016;

For those applying an adjustment factor, the average factor used to scale the rates of the standard BVG 2015 turnover table is around 140%.


Early Retirement

54.2%

45.8%

55.7%

44.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

No

Yes

2017 2016



Around 44% assumed early retirement at 31.12.2017 compared to 46% at 31.12.2016.


Lump Sum Payments on Retirement

10.5% 8.5%

59.5%

10.5%

1.3% 9.8%

13.4% 11.4%

51.7%

11.4%

2.0% 10.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

< 10% 10% - 19% 20% - 39% 40% - 59% 60% - 79% >=80%

2017 2016


2017 average = 31% (153 responses) 2016 average = 30% (149 responses)

Average assumption increased by 1% from 30% at 31.12.2016 to 31% at 31.12.2017;

Around 60% assumed from 20% – 39% at 31.12.2017 compared to 52% at 31.12.2016.


Proportion of Members with Spouse's / Partner's Pension

72.5%

27.5%

65.4%

34.6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Single Rate byGender

BVG15 Table

2017 2016



Around 35% assumed the BVG 2015 table (age-by-gender) at 31.12.2017 compared to 28% at 31.12.2016;

For the remaining 65%, a flat, gender-specific assumption was used. The average assumption was around 76% for males and around 65% for females.


Contact List

If you have questions, please contact your local Aon consultant or one of the consultants below: Iain Richardson | Senior Actuarial Consultant Retirement & Investment | Retirement Consulting Aon Schweiz AG | Lagerstrasse 33 | Postfach | 8021 Zürich | Switzerland t +41 58 266 88 17 [email protected]

Erin Voss | Principal Actuarial Consultant Retirement & Investment | Retirement Consulting Aon Suisse SA | Av. Edouard Rod 4 | 1260 Nyon | Switzerland t +41 58 266 85 13 [email protected]

mailto:[email protected]

mailto:[email protected]


Legal Disclaimer

To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon.

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