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Study admits statutory Swiss pensions governance needed

SWITZERLAND - Self-regulatory pension fund governance may not be strong enough to protect pensions in Switzerland, suggests a pension fund study published by Swisscanto.

An annual study of 279 pension funds by the Swiss asset management firm reveals while Swisscanto would itself prefer to see increased self-regulation of pension fund governance and associated investments, officials at the Association of Swiss Pension Funds (ASIP) disagree and believe the lack of public support for pension fund governance means the government has no option but to introduce a legal requirement.

Adding his comments to the Swiss Pensions Funds Study 2007, Christopher Ryter, chairman of ASIP and director of Alcan pension fund, said: "The sector has, unfortunately, failed so far to clearly document to the outside world that all participants are serious about implementing the loyalty provisions [in the investment sector]. Against this background, the Federal Council's proposals are basically going in the right direction."

In other words, suggests Swisscanto, Ryter believes the statutory governance rules, which also cover internal management and organisation of the pension fund - "should be adapted to current requirements".

This contrasts with the opinion of Swisscanto's chief executive, Gerard Fischer, who believes an extension of self-regulation would be sufficient to improve Swiss pension fund governance.

He argues the current code of conduct should be expanded and declared to be binding, and pensions institutions should "voluntarily submit to strict regulations" because of their financial and socio-economic responsibilities.

That said, any statutory or self-regulation would need to be supported by an improvement to the professionalism of trustees boards, according to Michael Brandenberger, ceo of Complementa Investment Controlling - a co-author of the study - as the survey indicates there has been little movement to improve internal standards.

He suggests a model of so-called "competence teams" should be introduced so members' abilities are better utilised.

"Up to now, the survey responses show virtually no trends towards increasing the professionalism of boards of trustees, for example, larger pension funds implementing the composition of their boards of trustees in a more structured manner. There does not seem to be a trend emerging, either, towards increasing the professional of boards of trustees by calling in external members, such as professional trustees," added Brandenberger.

Hans-Peter Burkhard, director of the centre of corporate responsibility at the University of Zurich, has investigated whether the use of a'competent board of trustees' has any impact on the pension fund's returns, but found the matter is somewhat difficult to quantify.

"Pensions institutions which maintain transparency and have instituted clear rules as to dealing with retrocessions [dividing consolidated assets risk], regularly achieved an above average performance from 2004 to 2006," states Burkhard.

"They also have higher value fluctuation reserves. However, the interest paid on the savings capital is below average and the costs incurred are above average," he continued.

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