Financial situation
The financial situation of Vorsorge RUAG has been characterised this year by positive stock markets, very low interest rates (10-year bonds at end of November 2014: 0.41%) and a pleasing trend in the listed property investments.
With an estimated return of 10.4% as at 15.12.2014, the coverage ratio increased from 101.5% at the end of 2013 to 109.7%. The target coverage ratio is 115% with a fluctuation reserve in line with the investment strategy, therefore the risk-carrying capacity remains limited.

Interest rate in 2014 and interest rate during the fiscal year of 2015
The interest rate for the current year is set at the end of the year. The advantage of this is that the decision can be made in hindsight, knowing the financial situation and the return generated. This has allowed the Foundation Board to set an interest rate of 2% on the retirement assets for 2014, which is above the minimum interest rate under compulsory pension legislation (BVG) (1.75%). However, there is still a need to set an interest rate applicable to events during the coming fiscal year, such as staff departures and retirements. This will be 0.5% for 2015.

Valuation interest rate as at 31.12.2014
It was mainly the low interest rates which pushed the return up to a high level. That is to say, the return did not come through interest income but through the higher valuation of the bonds on account of the prolonged reduction in interest rates on the financial market.
The pension obligations are assessed at the valuation interest rate, which is currently 2.5%. The assets which are sensitive to interest rate movements can be apportioned to those drawing pensions and therefore a reduction in the valuation interest rate is advisable. This will bring the valuation interest rate into line with the lower market interest rates and make it more reflective of reality. These considerations are behind the decision of the Foundation Board to lower the valuation interest rate to 1.5% with effect from 31.12.2014. This reduction will place a burden on the annual accounts in the order of about CHF 100 million and reduce the coverage ratio by an additional 6% after year-end interest. The positive effect is that the annuity reserves will no longer be subject in future to higher rates of interest than the retirement assets of those currently insured.

Amendment of investment regulations
The Foundation Board has revised the investment regulations to take effect on 1.1.2015 on account of the Swiss Federal Council ordinance on the Minder initiative (requirement of pension funds to protect shareholders' rights) and amended the Occupational Pension Ordinance (OPO) 2 investment provisions.

Choice of audit body
The Foundation Board announced the audit contract again for the financial year of 2015. The previous audit firm PricewaterhouseCoopers AG (PwC) was successful in winning the contract. It was chosen for the accounting year of 2015 and retained to conduct the audit. 

Our offices will be closed from 22.12.2014 until 5.1.2015

Merry Christmas and a Happy New Year!

Voluntary contributions may be made twice a year in order to increase retirement assets and insurance benefits. The application (Form E2) must be submitted by 15 December 2014. A deposit slip will be issued once the application has been checked and approved.

The contribution must be paid by 29 December 2014 so that the deposit can be entered on this year’s books and included in the 2014 tax return.

It is illegal for us to issue a tax credit certificate for 2014 in respect of payments received after 31 December 2014!

Financial situation
As of 31 August 2014, a pleasing return on investment of 7.59% was achieved. This corresponds to a coverage ratio of 107.7% before interest on retirement assets. The fluctuation reserve has therefore increased to about CHF 127 million. However, the risk-taking capacity is still limited.

This year has so far been characterised by the consistently positive share markets and another drop in interest rates. Consequently, the bond portfolios produced a positive return. Property investments were also positively impacted by interest rate movements, among other things. The share markets also posted positive returns, with emerging markets being the most profitable. The developed markets also achieved positive yields and thus had a beneficial influence on the return on total assets. However, the analysis of the return achieved shows that the low interest rates are the main driving force behind the good earnings. It follows that the return is not derived from interest income, but rather generated through the bond price increases which resulted from the unexpected further drop in interest rates on the financial markets.

No pension increase in 2015
Based on the current coverage ratio of 107.7% and the still low level of risk-taking capacity, the conditions required to grant a cost of living adjustment for the old-age, invalidity, spouse's and children's pensions as of 1 January 2015 do not exist.

Compliance regulations
The primary objective relating to all Vorsorge RUAG's activities is to protect the interests of policyholders and pension recipients. Compliance means adhering to all applicable laws, regulations and standards in order to prevent legal sanctions, financial losses and damage to reputation. Compliance is of particularly great importance to pension funds, because they manage in a fiduciary capacity the pension assets entrusted to them by the policyholders and pension recipients. This places maximum ethical demands on corporate bodies and employees. The existing regulations and new legal guidelines have now been combined in a regulatory document which applies with immediate effect.

Financial situation
The investment strategy chosen by Vorsorge RUAG (higher proportion of bonds and lower proportion of shares, among other things) benefits from the persistently low interest rates: as of 31 May 2014, Vorsorge RUAG achieved a pleasing estimated return on its investments of 4.54%. This corresponds to a coverage ratio of 105.2% before interest on retirement assets. The fluctuation reserve has therefore increased to about CHF 86 million. The risk-taking capacity is still limited.

Investment Committee by-election
The Foundation Board has elected Peter Streit, Vice President Accounting & Controlling, RUAG Corporate Services Ltd, as a new member of the Investment Committee. He will replace Marco Dirren, Vice President Finance & IT, RUAG Aviation, who will be leaving RUAG at the end of September.

Internal Control System (ICS): no action required
In order to guarantee the effectiveness of the extensive controls spanning the whole of Vorsorge RUAG, an annual self-assessment is conducted based on a detailed and comprehensive list of questions. This assessment did not produce any findings which would have required any measures to be put in place. Whether or not the internal control is adequate given the size and complex nature of Vorsorge RUAG is determined by the external auditors during the checks made during the interim audit and the final audit.

The Foundation Board and management of the Vorsorge RUAG pension fund are very pleased and proud to receive this award. RUAG also congratulates the pension fund on this success. Corrado Tedeschi, Managing Director of VORSORGE RUAG, said: "Clear, consistent communication with insured members creates trust and is thus a high priority for us. This award both confirms our high service level and inspires us to maintain and even improve it."

The key to creating trust in the pension fund and the whole 2nd pillar is communication, according to the Stiftung Eigenverantwortung foundation (www.stiftungeigenverantwortung.ch). It therefore presented the first ever award to the pension funds which communicate best with their members. As well as assessing the annual report, insurance certificate and various claim documents, it also considered other elements such as websites and newsletters.

Awards were presented in three categories: small and mid-sized funds, large funds, and collective foundations. More than 30 pension institutions took part in the first awards, just under a dozen from each category.

The dossiers were first assessed by an expert jury comprising pension fund and communication specialists, who drew up a shortlist of the best dossiers in each category. A jury of insured members chose the winners from this shortlist. This jury consisted of five insured members who were not especially familiar with occupational pensions, and were thus representative of the participating pension funds' target audience.

Financial situation
The average performance level of pension funds in 2013 was around 6%. The 2.08% return achieved by Vorsorge RUAG is rather modest in comparison. It is not because of poor investment but rather because of the conscious decision to reduce the equity risks from 40% to 20% on account of the extreme fluctuations on the investment markets. This worked to our disadvantage in 2013. We are assuming, however, that the bull market will subside at the very least or even go into reverse. It is still early in 2014 but the trend confirms this assumption. With an estimated return of 2.5% as at the end of March, Vorsorge RUAG achieved a comparatively good yield in poorly performing equity markets. The coverage ratio of 101.5% at the end of 2013 (previous year: 104.4%) recovered again to 103.5% at the end of March before interest on retirement assets.

Annual accounts and annual report indicate need for action
The Foundation Board has approved the 2013 annual accounts and annual report. Both documents address the risks in some depth and set out possible courses of action to strengthen the financial and structural stability of the fund. The keywords are asset liability management, valuation of benefit commitments with a variable and market-level interest rate (economic coverage ratio), reduction of valuation interest rate for 2013 from 3.0% to 2.5%, and elimination of pension losses. The latter amounted to around 9.3 million Swiss francs or 0.6% of the pension capital in 2013. In other words, 17.7% of the benefits of the employees who went into retirement last year are not covered and will have to be defrayed from the return to the detriment of the coverage ratio. It is obvious that further steps are needed to stabilise the financial position.

The annual report will be sent out to those currently insured and those drawing pensions and uploaded to the website in May. It contains detailed information about the aforementioned courses of action.