62 However, Switzerland has a very high annuitization rate within the second pillar compared to other countries despite the fact that the first pillar already offers a basic annuity stream which is close to the subsistence level. As there are no detailed representative statistics on the annuitization rate within the second pillar, we have to use proxy estimates. Using the number of new first pillar claimants and second pillar coverage rates, the number of new second pillar recipients is approximately 55 thousand each year. So departing from the 28,000 recipients of capital payments approximately 50 percent use a combination of a lump sum and an annuity. Bütler and Teppa's (2005) not representative dataset and preliminary evidence from labor force surveys also suggest that approximately 40 to 50 percent choose a (fractional) lump sum. All together approximately 20 percent of the accumulated capital is withdrawn as a lump sum for all three data sources (aggregate numbers, Bütler and Teppa (2005), and labor survey data). This fraction seems to have increased during the last decade, predominantly due to more sponsors allowing the lump sum option. Within companies that have always offered the capital option, the increase is less pronounced.

Another question is why the annuitization rate is so high. The first possible reason lies in the structure of the Swiss pension scheme with its close links between the accumulation and decumulation phases. During the accumulation phase (in which the individuals do not have any choice of provider and/or savings plan), the second pillar contributions are not only used to accumulate old age pension capital in quasi-individual accounts, but also to stock reserves to be used to cushion market fluctuations and other risks such as longevity increases of the current retirees in the scheme. At retirement the notional capital stock is translated into an annuity stream using high conversion rates mandated by law. In a way, individuals are compensated for lower accruals during the contribution period by higher annuity conversion rates when old. The second reason probably is tradition. The second pillar grew out of private occupational pension plans which predominantly offered defined benefits in the form of annuities long before the first pillar came into existence. So if people follow a habit, more people would annuitize than without such a tradition. Bütler and Teppa (2005) show, that there are large company effects even after controlling for pension plan and company characteristics, supporting the hypothesis that people follow a habit (or their peers and forerunners).

# **5.3 Assets, Liabilities and Investments**

Table 21 shows the consolidated balance sheet of all pension funds since 1987. Total assets have increased by a factor of more than 2.5. Expressed as a fraction of GDP, assets have increased from 64 percent to over 100 percent. Due to unfavorable developments in the financial markets, pension wealth experienced a temporary decline after 2000. In accordance with a more favorable evolution of financial markets, the pension wealth did increase again thereafter.

The same holds true for reserves. Since 1987, accumulated reserves have increased substantially. In 2000, they amounted to over 12 percent of fixed and non-fixed capital. This is comparable to the yearly volatility of the Swiss Market Index (SMI) as a measure for market uncertainty - 15 percent in 2000.