SWITZERLAND - The CHF26.7bn (€19bn) Swiss Federal Social Security Fund (AHV/AVS) will split into three from 2011 following 63 years running as a single entity.
It will separate out into a main old age pension fund, a disability fund and a third fund responsible for maternity and military benefit payouts.
The three different investment strategies and asset allocations have yet to be decided, but the military and maternity fund is likely to have the most dynamic asset allocation, as its financing sources will be the strongest relative to assets. A decision on their individual investment strategies is expected by the third quarter of 2010.
The new three-way system will be effective from 1 January 2011. Breval estimated that the old age pension fund would hold roughly CHF18bn, while the disability fund would hold CHF5bn. The military and maternity fund would be the smallest at about CHF500m.
Ever since the introduction of the federal disability insurance (IV) in Switzerland in 1960, its deficits have been financed by the Federal Old Age and Survivors' Insurance AHV (or AVS in French).
"This was an unhealthy state of affairs and therefore Parliament wanted to create its own sources of revenues and own expenses for each insurance," said Eric Breval, CEO at AHV.
"The opinion was that if an insurance has a structural, chronic financing problem, like the disability one, it should not be able to solve it at the expense of another insurance."
While the disability fund is a new development, the fund responsible for maternity and military payouts has existed for a number of years, albeit not as a separate entity. From 1 January 2011, additional financing for the disability fund will run for seven years, during which the fund should be in equilibrium. What will happen thereafter is an open question.
Current target medium-term asset allocation for the overall fund comprises: 47% foreign currency bonds; 20% Swiss franc bonds; 10% Swiss franc loans to cantons and municipalities; 15% equities; 5% real estate; 3% commodities. Currency risks associated with the investments are hedged to 80%.
The Swiss first pillar buffer fund recently announced it was looking for an investment consultant to take over a wide range of services including looking at "new asset classes" and providing "forecast analysis" (See previous IPE article: Swiss AHV seeks consultant ahead of asset search).