Accounting rules ‘threaten Swiss pension system’

SWITZERLAND – A move to international accounting standards could present a threat to the Swiss pension system, says former Pictet & Cie senior partner Charles Pictet.

“A change in accounting standards would have only negative consequences: the misappropriation of Swiss ownership rights, lower valuations of Swiss stocks – coupled with higher volatility and cyclical earnings – pension savings not used to their full potential and withering of the three-pillar system,” Pictet says.

Writing in the Financial Times, Pictet noted that the IAS19 standard stems from Anglo-Saxon business practice – and that under Swiss law the pension fund of a public company is not the sole property of the plan sponsor.

“It is a foundation managed equally by the employer and the employees,” he states.

He cited the example of airline group Swissair, which caused a furore when it tried to claim ownership of the surplus assets of its pension funds to stave off financial difficulties.

Pictet also argued that IAS rules force an excessively conservative valuation on future benefits and make companies’ earnings more volatile.

“Employers would probably encourage pension funds to avoid volatile assets wherever possible. Pension funds, in turn, would buy fewer equities, particularly foreign equities.”

“Such a system would contradict the spirit of the well-tested 30-year-old Swiss retirement system.”

He added: “If investments are limited to bonds, pension funds would become underfunded.”

Pictet, who has been a member of the federal AVS commission and the Swiss Bankers Association’s committee on pension, joined the Swiss banking commission in 2004.

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