The strategic push by Swiss public pension funds to open their schemes to new employees or employers beyond cantonal borders brings challenges that can, at times, outweigh the benefits of strengthening their structures to compete with private pension institutions.
Andreas Rothacher, senior investment consultant at Complementa, told IPE that broadening membership can help “improve the age structure” of public pension funds by lowering the share of retirees.
“On the other hand, depending on the sector of the newly enrolled members, it could also lead to greater fluctuations in terms of number of insured,” he added.
The advantages of opening public pension funds to third parties depend on several factors, including funding ratios, the conversion rate used to calculate pension pay-outs (Umwandlungssatz), and the interest rate applied to pension assets.
As a result, it is not always clear whether a public pension fund is in a position to open up and onboard new members, Rothacher said.
Lowering the average age of members through new enrolment requires public pension funds to compete more actively with collective foundations (Sammelstiftungen), which are built on the affiliation of multiple employers, according to Oliver Gmünder, head of relationship management at Complementa.
Further questions relate to whether pension funds would enhance their offerings sufficiently to attract new members, he added.
Public-sector pension funds are generally open only to public-sector companies and municipalities within their respective cantons.
However, discussions are underway about widening membership beyond cantonal borders to include additional municipalities, energy companies and education sector institutions.
The debate was recently reignited by Emmanuel Ullmann, chief executive officer of the Swiss pension fund for the canton of Solothurn (Pensionskasse Kanton Solothurn, PKSO).
New enrolments improve “the risk distribution within the pension fund”, rebalance the ratio between workers and retirees, broaden the revenue base and reinforce the long-term financial stability of public pension funds, Ullmann wrote in the newspaper Neue Zürcher Zeitung.
Diversifying the membership base also enables pension funds to pursue investment strategies with expected returns that are generally around one percentage point higher than the expenses incurred for liabilities, according to Ullmann.
Funding ratios at public pension funds have improved significantly in recent years, leaving room to offer members attractive interest rates on their pension savings and, in some cases, compensation for inflation.
Public pension funds also contribute to cantonal finances, for example, through their impact on credit ratings, and play a role in investing in the domestic economy.
“I believe that public pension funds should be open to new employers. This would allow them to better manage their structural risks, as they suffer from the ageing society,” Ullmann told IPE.
Opening up strategically would also allow public pension funds to make better use of economies of scale, improving their competitive position against private-sector pension funds and other pension institutions, he added.
Gmünder noted that onboarding members from beyond a canton’s borders is only possible for fully funded public-sector pension funds.
“A prominent example is the Aargauische Pensionskasse (APK), which has successfully opened its doors to other members,” he said.
Publica said in a statement that, as the federal pension fund, it does not aim to establish affiliations with other employers.
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