Clear boundaries ahead

Related Categories

An amendment to the legislative framework for pensions aims to reduce the number of supervisory authorities for Pensionskassen with clearer structures and more unified rules on governance, finds Barbara Ottawa

Some of Switzerland’s 26 cantons just consist of one city, like Geneva, while others, such as Grisons, are almost three times as big as Luxembourg. Until 2006, each of them had its own supervisory authority for Pensionskassen, although a trend towards the consolidation of pension supervision continues.

“Before the creation of the mandatory system in 1985 some of the supervision even happened at the municipal level,” Anton Streit, deputy director for pensions at the Swiss federal ministry for social insurance (BSV), recalls.

But since discussion on a structural reform of the supervisory system started a few years ago, several cantons have decided to pool their resources to create regional supervisory authorities. This started in central Switzerland with the cantons of Luzern, Nidwalden, Obwalden, Schwyz, Zug and Uri creating one regional supervisory authority in 2006.

The northern Swiss region of Schaffhausen joined the supervisor in Zurich a year later and at the beginning of last year St. Gallen, Thurgau, Appenzell Innerrhoden and Ausserrhoden, Grisons and Glarus also started co-operating. “That already halves the number of supervisory authorities,” notes Streit.

The eventual aim is to reduce the number to around six or seven for the whole of Switzerland. The north-western cantons Solothurn and Basel as well as Basel-City are currently negotiating pooling their resources and some in French-speaking Switzerland are considering it.

That means a major part of the planned structural reform is already being implemented, even though the bill has not received full parliamentary ratification. Last year the Upper House, the Ständerat, agreed to the bill drafted by the government. Last month the paper was to be put before the Lower House, the Nationalrat.

The necessity of a reform is almost undisputed in Switzerland but some think it goes too far, while others say it does not go far enough. The idea of one centralised supervisory authority for all Swiss Pensionskassen, which had been considered briefly was widely rejected and foreigners might see that as yet another proof of Swiss innate federalism.

But Streit argues that regionalisation of supervision makes sense: “There is still a strong bond between the Pensionskasse and the company that outsourced its assets and pension liabilities to it.”

In Switzerland there are over 2,000 Pensionskassen registered in the mandatory second pillar and Streit doubts whether one central supervisory institution would have the necessary regional knowledge to assess each scheme’s risks and financial situation.

“The creation of regional supervisory authorities is a Swiss compromise,” confirms Michael Brandenberger, CEO of Swiss consultancy Complementa. He sees the creation of a supervisory umbrella organisation as “quite a novelty” for Switzerland.

This body, the new Oberaufsichtskommission, or super-regional commission, which is to consist of five to seven ‘independent experts’ including employer and employee representatives, is to be given quite wide-reaching powers when it comes to auditing other supervisory authorities.

For these tasks, as well as to guarantee the co-ordination between legislation in the three pillars of the Swiss pension system, the new body will have a secretariat in the BSV.

One of the major innovations to the system will be the power granted to the new top authority to set standards for the whole of Switzerland. “Swiss federalism results in many things being done differently in the various cantons as the regions have a lot of leeway,” Brandenberger comments.

The standards that the super-regional commission might set include actuarial assumptions of the Pensionskassen or reserve buffers to be accumulated by the funds, Streit notes, but that will be for the experts to decide. What will not fall within the new body’s remit is the annual setting of the conversion rate used to calculate pension payouts, which will remain a political decision.

The top supervisors will also be handed the results of a government-commissioned and soon-to-start study on foreign supervisory systems, and its view on issues including Solvency II. Although Switzerland is not part of the European Union, the discussion around solvency standards drawn up for insurance companies being applied to Pensionskassen is almost the same, only with the Swiss Solvency Test (SST) replacing Solvency II.

“We, the BSV, do not think the same regulations should be applied to Pensionskassen but more regulatory standards in some areas would make sense - that is why we are looking to other countries and their experiences,” Streit notes.

In general, market participants expect little change for their asset allocation, or fundamental changes to how they run the Pensionskasse, as the system was already well regulated. However, one manager at a Pensionskasse pointed out that future changes depend largely on the make-up of the new supervisory body and as yet it is not known who will be on it.

“There will be no major changes for the Pensionskassen because of the reform - maybe some in reporting but it will have no massive influence on their day-to-day work,” Brandenberger confirms. He adds that the funds that will be most affected by reform will be those that have so far been directly supervised by the federal government.

Apart from supervising all cantonal authorities, the federal government has, so far, only had responsibility for the supervision of Pensionskassen that operate in more than one canton.

The reform will see those funds being assigned to regional authorities according to the location of their headquarters. Streit confirms that the reform is a clarification of certain points on which there has been uncertainty before.

“Currently tasks and responsibilities within a Pensionskasse are too little regulated on the legislative level,” he points out. “There are some scenarios where at the moment it is not clear who has the responsibility.”

Under the new regulations. the board of a Pensionskasse will have to bear full responsibility for setting the actuarial interest rate. While it can delegate its calculation to experts, the final decision will lie with the board. “The expert only makes a suggestion but if the board does not follow his suggestion he will have to report this fact to the supervisory authority,” says Streit.

The regional supervisors will also be granted more powers in auditing both Pensionskassen, as well as those who advise them. The measures will range from additional reporting to revoking decisions made by the fund should it be absolutely necessary. “I welcome the reform as it will make supervision more unified, with fewer differing approaches,” comments Brandenberger.

The amendment to the occupational pension law BVG will also include a paragraph forbidding board members to award contracts to themselves or their own firms. Companies with connections to board members will be able to get mandates but those have to be granted at conditions similar to other market participants, and will have to be reported to the auditors.

Both front-running as well as parallel-running will be forbidden. This means that board members of a Pensionskasse will only be able to buy or sell equities that are also in the fund’s portfolio after the Pensionskasse has done so.

Currently the law states that parallel-running is allowed as long as there is “no serious damage” to the Pensionskasse. One point that might still meet opposition, according to Brandenberger, is the question of bonus payments for the successful placement of mandates with a fund.

Those are often paid to individuals but the government wants the money to go to the Pensionskasse. “The law wants to create transparency for the Pensionskasse on these payments,” Brandenberger adds. “This structural reform contains a lot of didactical measures, which means there are no major new regulatory issues but a setting of boundaries, instead,” concludes Streit.

Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2503

    Asset class: Equities.
    Asset region: Emerging Markets.
    Size: EUR 30m.
    Closing date: 2019-01-31.

  • QN-2505

    Asset class: Real Estate Core/Core-Plus Multi-sector strategy.
    Asset region: Asia-Pacific.
    Size: $ 50m.
    Closing date: 2019-01-28.

Begin Your Search Here