Coverage ratio

If one compares the obligations of a pension fund with its assets, one obtains the coverage ratio. If the coverage ratio is over 100 percent, the pension fund has more assets than obligations (excess coverage). If the coverage ratio is below 100 percent, the obligations outweigh the pension fund capital (underfunding).

The coverage ratio depends, among other things, on the technical interest rate applied. The actuarial interest rate is used to add interest to the actuarial reserves for the pension commitments. If the technical interest rate is set high, the coverage ratio is also higher. When assessing the soundness of a pension fund, both components, the funding ratio and the technical interest rate, must therefore always be taken into account.

As a rule of thumb, the cover ratio is reduced by up to 5 percentage points if the technical interest rate is reduced by 0.5 percentage points.

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