Swiss social security buffer fund Compenswiss has halted its asset sale programme and reviewed its investment strategy after Swiss voters last year gave the green light for an additional annual CHF2bn (€1.88bn) in financing for the state pension system.
Announcing its investment results for 2019, the fund said the extra money, which is dispensed from this year, will plug the gap between benefit payments and income for around four years.
As a result, it has been able to put a halt to its divestment programme, which had been running for about two years, initially at a monthly rate of CHF100m and then CHF125m.
It also reviewed its investment strategy in light of the financing reprieve.
A spokesperson for Compenswiss told IPE it had only adopted limited shifts for 2020, “reflecting a cautious approach in our overall risk assessment”, although the strategy asset allocation could still be amended in the future given the longer time horizon.
For 2020 the fund had decided to switch 1% of its foreign fixed income allocation to real estate, “a market traditionally associated with higher returns but lesser liquidity than fixed income,” the spokesperson said.
The allocation to real estate has risen to 10% as a result of the shift.
Demographics are weighing on the Swiss state pension system. According to a study carried out in 2019 by UBS in conjunction with researchers at the University of Freiburg in Breisgau, pension promises from the state pension – AHV in short in German – exceed the system’s future income by about 170% of GDP (base year of 2016).
The extra yearly cash injection of CHF2bn stems from a tax and AHV financing reform that was approved in a referendum in May last year, and according to the study it cuts the pension funding shortfall by about 20%.
Solutions aimed at the long-term funding equilibrium are being discussed in parliament. The government’s reform proposal, known as AHV21/AVS21, aims to secure the financing of the state pension until 2030, which it has calculated as requiring an additional CHF26bn.
Compenswiss’s investments gained a net 10.22% in 2019, with total assets going from CHF34.2bn to CHF36.4bn as at the end of the year. The return is the second highest since the first pillar pension system and the buffer fund were established in 1948.
Operating and asset management costs amounted to 0.19% of total assets, in line with the previous year.