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Français SWITZERLAND – THE POST-COVID-19 ECONOMY – THE UNPLEASANT SURPRISES OF THE AFTERMATH
For small businesses and our elderly, the post-COVID-19 economic landscape could be dire… Pension funds that are already struggling will suffer even more, and SMEs, which are barely managing to get by at the moment, are likely to struggle to survive in the second half of the year…
How will Switzerland emerge from this unprecedented post-crisis period?
It would take a truly intrepid soul to venture any predictions… Nevertheless, some rather logical news is now emerging, and it helps us understand two essential things:
Overheads are the most important area to optimise when you’re an entrepreneur, and you must always plan how to cope in the event of difficulties
In life, you must always think like an entrepreneur and manage your life and future returns without blindly trusting third parties, but by taking control yourself.
Dear pensioners, now you know: with the cut in social security contributions and the beating that many companies are about to take, your pensions have just been ‘Karshérised’ with napalm…
Below are two articles that explain this introduction very well.
Alain Farrugia
Pension funds are suffering from the coronavirus
They are experiencing their biggest slump since the third quarter of 2001. Their funding ratios have fallen sharply
The negative performance over the first three months of the year has already wiped out three-quarters of the gains made in 2019
The economic implications of the coronavirus pandemic are taking their toll on the assets of Swiss pension funds, according to the periodic report published on Wednesday by the consultancy firm Willis Towers Watson.
The decline in the value of investments in Swiss companies has pushed the consultancy’s index, which measures the funding ratio, below the 100% mark for only the second time in three years.
The negative performance over the first three months of the year has already wiped out three-quarters of the gains made in 2019. The impact on balance sheets has, however, been mitigated by an increase in loans to businesses. The coverage ratio stood at 98.3% at the end of March, down from 105.2% three months earlier.
The authors of the study nevertheless point out that pension funds have the luxury of adopting long-term investment horizons and are thus relatively spared from short-term turbulence.
Negative return
In terms of performance, pension funds recorded a negative return during the first quarter against a backdrop marked by the spread of the coronavirus. The Credit Suisse index fell by 7.4% to 172.36 points. This is the sharpest decline since the third quarter of 2001, according to the bank’s regular report published on Wednesday.
Most of the negative performance in the first quarter was due to equities (-5.53%), with performance dragged down by both Swiss (-1.58%) and foreign (-3.94%) shares, the statement noted.
Furthermore, property (-0.49%) also performed negatively. Bonds (including convertibles) weighed on the result with a contribution of -1.14%. Alternative investments and other assets were relatively subdued, but also negative. By contrast, cash holdings were slightly positive.
The BVG minimum interest rate index rose by 0.38 points (or 0.25%) during the quarter under review, to 155.54 points, also on a base of 100 points at the start of 2000. In the first quarter of 2020, the return on the Credit Suisse Swiss Pension Fund Index was therefore 7.65% below the BVG target.
The Credit Suisse Swiss Pension Fund Index posted an annualised return of 2.73% as at 31 March 2020, whilst the annualised BVG minimum return stood at 2.21%.
There are some subtleties behind the loans guaranteed by the Confederation
RTS - News The intricacies of loans guaranteed by the Swiss Confederation In the news / 7 min. / Monday at 08:36.mp3, 00:00/07:16
The loans guaranteed by the Swiss Confederation to help the Swiss economy cope with the Covid-19 crisis involve a few subtleties. Among other things, the 0% rate applies only to loans of less than 500,000 francs and is guaranteed for the first year only.
The COVID-19 loans guaranteed by the Confederation at a 0% rate apply only to loans of less than 500,000 francs. For larger sums, there are the "COVID-19 Plus loans", which carry a rate of 0.5%. But be aware: these two rates – 0% and 0.5% – are guaranteed only for the first year.
A careful reading of the Ordinance on Joint and Several Guarantees Related to COVID-19 reveals that, from 31 March 2021, the Department of Finance may, in consultation with the banks, decide to reassess the interest rates. Rates could therefore potentially rise as early as next year.
Rates that could go up
When questioned by RTS on the programme On en parle, Fabian Maienfisch, spokesperson for SECO (the State Secretariat for Economic Affairs), also clarified that no cap on rate increases was planned. In other words, rates could theoretically rise in the coming years.
Another nuance is that the federal government is leaving it up to the banks to decide how they wish to grant these loans. Thus, loans granted by certain banks do not take the form of money paid into the borrowers’ accounts, but instead constitute an overdraft limit equivalent to the amount requested. This is notably the approach adopted by PostFinance.
A less-than-ideal solution for the self-employed
However, this approach is not without its implications for small business owners in need of liquidity. “The prospect of constantly being in the red on an account is a disaster when you’re a small business. It’s already hard enough to keep your head above water under normal circumstances, so this makes it even harder psychologically,” explains Lionel, a small business owner in the canton of Fribourg who applied for a loan from PostFinance.
When contacted, PostFinance defended its approach by arguing that this solution is "more flexible", as the credit limit granted can be used in a single instalment or spread out over time as needed.
Radio report: Johanna Commenge
Web adaptation: Antoine Schaub
Sources:
https://www.lematin.ch/story/les-caisses-de-pension-souffrent-du-coronavirus-396210116405
