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Kanton of Zurich in DC move

Switzerland’s Sfr18.2bn (e11.4bn) pension fund for employees of the Kanton of Zurich (BVK) has closed its defined benefit (DB) scheme and become a defined contribution (DC). plan.
The change, from January 1, was cited because of a change in modern work culture.
The move is also part of an ongoing project to become an independent legal entity by 2005, which could see the fund move into offering third-party management and investment/pension services.
Daniel Gloor, head of asset management at the fund, which has approximately 50,000 active members and 15,000 pensioners, says: “The main reason for the shift is that the environment of having a job has changed dramatically in the public sector.
“There is nobody left who starts work at age 20 and stays with the same company for 30 years. They might now work for 10 years and then leave, or be working part time. It is very complicated.
“With DC, on the contribution side it is more transparent – you have one account that you pay into. The solidarity aspect has changed.
“In the long run, defined benefit plans are expensive to run also. This is a trend and I think it is the right trend.”
Gloor adds that the scheme had already planned to switch over the DB scheme in 1997, but it had been unable to do so due to information technology structures.
All current members of the DB scheme will remain in the same fund, with new employees from the year- end offered DC only.
Gloor says: “We were bothered that some employees who had until now been in the pension plan could move to insurance companies and banks which have put up a strong battle to attract these clients. In the end though, there are only six employees who are moving, which is a very small amount so we are quite happy.”
He adds that there will be no dramatic changes in the fund’s asset management approach, however. “In the past 10 years we have already been very market oriented in our investments and performance. The change is solely to a different kind of contributions set-up,” he says.
The project is to become a separate legal entity. Gloor comments: “Until now, the BVK has been part of the directorate of finances at the Canton of Zurich. In future, probably in around five years’ time we will go independent – probably under the same kind of structure as the Zürcher Kantonalbank. I hope that there is political influence for this move.”
Gloor says one result of independence could be that the fund starts managing third party assets for other Swiss pension schemes.
“We have not talked about it yet, but I think we could probably sell other services also,” he adds. Hugh Wheelan

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