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Nussbaum says Swiss funds need performance ratings

SWITZERLAND- Switzerland’s multi-employer pension companies, which manage the bulk the country’s mandatory occupational schemes, should be rated by their performance, say pensions experts.

The proposal comes from Innovation Second Pillar, a Swiss think tank on pensions development, headed by Werner Nussbaum, one of the architects of Switzerland’s second pillar pension system.

“The present situation is very cloudy, and there is no transparency of the market,” said Nussbaum. “There is no rating agency like Standard & Poor or Moody that can rate the track record and performance of these multi-employer pensions service companies.

“The task we have set ourselves is to make much more transparent the quality of these different companies.”

Switzerland’s 200 multi-employer pension companies manage some 80% of the country’s occupational funds. Under the mandatory second pillar system, companies that are too small to set up their own pension schemes must have their plans managed by one of these companies.

The multi-employer companies are run by banks, life insurance companies or accounting firms. Until recently, they have had the field to themselves. However, they now face competition from third party providers of pension fund administration and investment services.

The latest of these is Pension Fund Services Ltd , jointly owned by the three pension funds of the bankrupt SAir Group – VEF, Kaderversicherung and APK. ABB Vorsorge is also expanding its pension fund services to third parties.

Nussbaum, who is a member of the federal government’s advisory committee on pensions systems and a member of the board of trustees of the BVG security fund, said there was currently no supervision of service companies. “They take all the risks but there is no supervision.”

He said that the larger pension funds had actuaries and accountants who should act as rating agents: “They should care for the quality of the performance. But it doesn’t work like that. The actuaries and accountants do not like to criticise the management because they wish to keep their contract s.”

Multi-employer companies are technically supervised by federal agents, he said. “They too should be the rating agency. But they are civil servants and they do not know the working of the financial markets. In the past pension funds lost money because supervisors got information too late. What we need is preventive supervision by the market itself. The supervisors need much more information on the quality of the service company’s performance and track record.

“A rating agency can let in the light on these companies, showing their capacity and quality. This will enhance the competition on the Swiss pension market.”

Nussbaum said the proposal will be developed further at a seminar on pension outsourcing on May 28 in Zurich. Among the participants will be Christoph Oeschger of ABB Vorsorge and Reto Kuhn of Pension Fund Services.

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