Swiss authorities consider ban on pension broker commission
Swiss pension fund association Asip has supported plans to overhaul the country’s rules on broker fees related to second-pillar funds.
Switzerland’s government has said there is “need for adjustment” to the rules, following a motion filed in March by Social Democrat MP Mathias Reynard calling for the authorities to revise the current legal framework in which some pension funds pay for brokers to sell their product to companies.
The number of company pension plans in Switzerland has fallen considerably over the past 20-30 years, with employers opting to transfer their pension plans to multi-employer schemes, known as Sammelstiftungen or Gemeinschaftseinrichtungen.
In his motion, Reynard criticised the fact that commissions for brokers were paid from money in pension funds.
The government agreed that second-pillar broker commissions were “problematic” and “not in the interest” of employees. It also warned that commissions could trigger “wrong incentives” and “increase existing distortions in the second pillar”.
Therefore, the government said it was “prepared to look into” how and where legal changes might be applicable to broker commissions.
The government’s statement also acknowledged that some industry experts had advocated bans on “volume-based commissions” or “a general ban on commissions paid for by the pension funds”.
The current system of broker commission is based on the volume of transferred assets and liabilities, among other contract parameters.
Company pension funds make payments to brokers for recommending them a multi-employer pension plan to join, should they wish to outsource their assets and liabilities. Additionally, there are annual broker commissions paid by the collective pension plans, also based on volume.
This means some brokers recommended pension plans because they might generate higher fees, “rather than by having objectively assessed the product”, Asip said.
The pension fund association emphasised the importance of broker services but added that there were alternative payment options, including hourly rates or based on other workload parameters.
In a recent study, Swiss consultancy C-alm urged regulators and the government to create more transparency in the competition among multi-employer pension plans. This included the use of different incentives for brokers and better training.
C-alm also pointed out the increasing importance of these issues, as collective pension plans were becoming larger and thus posing a greater threat to the system should one of them collapse.
Supervisory body Oberaufsichtskommission (OAK) also highlighted the growing systemic importance of multi-employer pension plans in Switzerland in its latest performance update for the second pillar.
As per year-end 2017, over 70% of Swiss employees and retirees were covered by collective pension plans. Given their increase in size, some multi-employer plans were “similar to complex insurance companies”, the OAK noted.
At the beginning of this year, the OAK came under fire from collective pension providers and Asip after it proposed more regulation in this sector.