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Impact Investing

IPE special report May 2018

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Put the trust back

Being outside the EU doesn’t mean you escape regulation. Swiss pension funds are complaining about excessive regulation – in this case, the burden is homemade and only to some extent fuelled by the financial crisis. 

Pierre Triponez, director of the Swiss federal supervisory body for pensions (OAK), told delegates at the recent Fachmesse conference in Zurich that everyone should do their bit to make sure regulation is less complex. He also called on pension funds to be more transparent and avoid new scandals, which would be a sure-fire way to attract the scrutiny of politicians looking to justify further regulation.

Triponez sounded like a parent chiding his unruly children which, in a way, is what OAK was asked to do. Before the financial crisis, several major scandals shook Swiss pensions, making additional regulation necessary in the eyes of the politicians. 

So while the structural reform that set up OAK and introduced new governance regulation is ongoing, the government is already preparing the next major reform – known as Altersvorsorge 2020 – covering the whole pension system. 

Some of the new supervisory bodies are calling on OAK to grant them even greater powers against unruly pension funds. But instead of tightening the regulatory corset, pension funds argue that trustee board members should have greater prudent decision power. 

Meanwhile, the number of Swiss pension funds continues to decline as smaller entities struggle with regulatory requirements and an increasingly challenging investment climate. Trustees have to make much more complex decisions than ever before and this can be difficult, particularly for lay board members. 

The personal connection between employees and ‘their’ trustees has been an important matter of trust between members and their second-pillar pension funds. This trust seems to get lost in larger multi-employer Pensionskassen. 

In a country where referendums are binding and the voice of the public has a strong influence on politics, it has proved difficult to amend technical parameters within the occupational pension system – both in the first and the second pillars. 

But now that the low-interest-rate environment has laid bare underlying fundamental weaknesses in the system, the government must act on issues like the interest rate used to calculate pension benefits. It remains to be seen to what extent the Swiss public and the various lobby groups will let the reform change the system.

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