The 1e pension plans market in Switzerland is likely to exceed the threshold of CHF10bn (€9.8bn) in 2026, having quadrupled during the period 2015-2020 from CHF1.69bn to CHF6.66bn, according to research published by Credit Suisse.
1e pension plans are set to grow “significantly” in the long-term, the study added, citing the distribution of income according to the Swiss Labor Force Survey (SAKE) by the Federal Statistical Office.
Although in 2020 only around 12% of the employees crossed the income threshold of an annual salary worth CHF129,060 required to join 1e plans, clearly a minority, the research study currently estimates the potential for 1e pension plans to be around CHF65bn in terms of pension capital.
The study noted that 1e plans are fit to face the challenges in the occupational pensions industry, overcoming the redistribution from active members to retirees, for example, and without the obligation typical of traditional Pensionskassen to build reserves with gains from positive investment results.
The analysis also looks back citing a survey of 17 Swiss 1e foundations, including 14 collective foundations, conducted by PwC last year and pointing at a steady growth.
The assets in the 1e plans of the foundations surveyed amounted to around CHF5.8bn at the end of 2020, of which CHF4.3bn is in collective foundations. The collective foundations expect an annual growth of 17% up to 2026 and an increase in assets to around CHF9.3bn.
Pension assets under 1e plans rose from 0.2% of the total in 2015 to 0.8% of the total in 2020, and the number of members from less than 5,000 to almost 35,000 during the same period, according to figures from the Occupational Pension Supervisory Commission (OAK BV) and Credit Suisse.
With 1e plans, which fall under the second pillar of the country’s pension system, pension funds offer their members a choice between 10 different investment strategies, at least one with a low-risk profile. The beneficiaries bear the full risk for the investment and withdraw the accrued assets when they retire.
Although 1e plans are based on individual choices, they differ from third pillar pensions because the choice of the investment strategy is mandatory. A further difference with third pillar plans is that savings under 1e schemes are higher during the working life.
The market for third pillar pensions has however steadily gained in importance in recent decades in Switzerland. Third pillar’s pension assets held by banks and insurance companies continued to grow, totaling over CHF135.2bn at the end of 2020 despite the COVID-19 pandemic, according to the study.
1e pension plans have existed since 2006, but it was only since a change in the provisions of the Vested Benefits Act – Freizügigkeitsgesetz – in 2017 that pension funds no longer have to grant their members a minimum guarantee in the event of them leaving an employment.
This change, according to the study, has significantly increased the appeal for 1e pension plans for pension institutions and has brought them to the attention of the public.
1e plans in the Credit Suisse Pensionskasse
The study takes a look at data from the Credit Suisse Pensionskasse during the years 2020 and 2021 to try to depict the investment behaviour of employees who signed up for 1e pension plans.
At the start of the 1e plan implementation in February 2020, members had the choice of transferring their assets from a lump-sum plan to the new 1e plan. They could also choose from six investment options.
Without an active choice the default option was the low-risk strategy. The remaining investment options include equity allocations of 15% (Mixta 15 option) to 75% (Mixta 75 option). Investment strategies with 65% and 100% allocated to equities are also offered from this year.
Particularly the younger generation aged below 35 years old picks the Mix 75 option, according to the study.
In the case of Credit Suisse’s Pensionskasse, however, 40% of members opt for a low-risk strategy, that is also the dominant strategy across all age groups. The high number of members opting for the low-risk strategy may come as a surprise given the relatively high investment returns of recent years, the study noted.
There is a strong correlation between pension assets in 1e plans and the risk profile chosen for an investment strategy. Members of the Credit Suisse Pensionskasse with a large amount of capital saved in the 1e pension plan rarely choose the low-risk strategy.
For example, only 12% of the 20% of members with the highest amount of capital in 1e plans chose such a strategy. Many members with very little capital in the 1e plan avoid investing in securities.
Overall, almost 90% of the capital is invested in a strategy with an equity component. The analysis of the investment behaviour of the members in the 1e pension plans of the Credit Suisse pension fund shows that many make use of the choice of an investment strategy and are therefore also willing to take higher risks.