Swiss funds shying from their core business – Profond
SWITZERLAND - Herbert Brändli, head of the multi-employer fund Profond, has criticised the growing trend for Swiss Pensionskassen to shy away from longevity risk by outsourcing pensioner liabilities, promising only capital payments at retirement and switching to defined contribution (DC) schemes.
"If I see pension payments and longevity as risks then what am I doing here? This is supposed to be the core business of a Pensionskasse," he said. "As long as people are working we will continue to get assets into the pension fund." Brändli said this was enough to keep buffers filled and pensions guaranteed.
He also predicted that equities - an asset class Profond has a greater exposure to than most Swiss pension funds - would continue to return 4% annually over the long term.
Brändli has said he believes in taking more risk than is typically borne by Pensionskassen, although Profond's strategic asset allocation of 50% equities left the fund slightly underfunded following the market downturn (see earlier IPE story: Swiss pension plans to maintain strategy for good returns).
"The only major problems Swiss pension funds were suffering over the last years were because of illegal activities - so there is an operational risk, but longevity is not the problem," he said.
But Peter Zanella, head of retirement solutions Switzerland at Towers Watson, said the trend towards removing longevity risk among Swiss Pensionskassen would be compounded, predicting the current discount rate in the Swiss mandatory second pillar of 3-3.5% to come under pressure should the deflationary scenario continue. This would see liabilities increase by up to 15%, he said, and even if inflation returns, Pensionskassen would have to face the problem of financing pension indexations.
"While earlier switches to defined contribution schemes were made to achieve more transparency, we can now see more and more switches with actual cuts in benefits," Zanella said.