Konrad Niklewicz, a partner at PWC and chairman of the chamber of Swiss actuaries, believes it would be exaggerating to say there is no crisis is the Swiss industry. Nevertheless, he maintains that the situation is less acute than that painted by many commentators.

Switzerland has seen a long and drawn out debate ever since the government decided to cut the minimum interest rate from 4% to 3%. “The discussion in the press became very emotional and the insurance companies were attacked and are really the scapegoats in this situation,” he says.

Insurance companies have come under attack in the press as they maintain they are unable to pay out a 4% guarantee during leaner times. On criticism of the insurance companies he says: “there may be an element of truth in it but in my opinion it’s exaggerated in the way it is presented in the press”

He maintains that the remaining few months of the year are likely to remain tough for Swiss funds and that, in the short term, a number of Swiss funds are cutting their equity exposures. “What will happen in the long term will obviously depend on how the markets evolve.”

He maintains that the Swiss funds and their move into equities has been highly unfortunate. “In previous bear markets, exposure to equities and shares was much lower. As soon as pension funds started to invest in equities at the end of the 1990s, so it turned out to be the worst moment to do so.”

Swiss funds are heading one of two ways. “Some are realising that they have to stick it out and wait for the situation to improve. Others have shifted either into fixed income or real estate.”

Switzerland had it own real estate crisis about ten years ago but this has been resolved and consequently there has been inflows of capital.

Niklewicz says the combined effect of both falling markets and low returns from fixed income is, to a certain extent, a new situation. “But what balances it at the same time is that inflation is low. What would really be critical is if you still had inflation of 3%-5%. Inflation today in Switzerland moves between zero and 0.5%. So inflation is between zero and 0.5% and fixed income brings in 3%. It’s not brilliant but it’s not that bad.”

Swiss funds have recently swapped over from a book value to a market to market approach. Niklewicz says that the idea of switching to market value was to add transparency and to give a better view of the situation.

“Market to market is probably the best approach but it does not mean that you cannot include some kind of investment fluctuation reserve. A market to market approach with an investment fluctuation reserve is a transparent way of presenting a true and fair view of the pension fund.”

Another issue under scrutiny in Switzerland is that of solvency rules, something that Niklewicz is convinced will become more relevant in the future. But as for new legislation, he remains unconvinced.

“As far as I’m concerned, the fewer new rules and laws, the better it is for pension funds. In this respect, I would not look to the government to solve the problem. The pension funds should find ways of adapting.”