Switzerland’s rules governing pension fund investments are to be revised. Many pension fund managers fear that alternative investments in Switzerland risk being restricted or forbidden altogether.
But Bruno Lang, head of the advisory group for Swiss government and chief supervisor of pensions funds in the Canton of Zurich, strongly believes this won’t be the case however. If anything, he believes that the reforms will bring more freedom, but in return pension funds should take on more responsibility for the results themselves, he says.
Swiss investment rules already adopt what many could say was a prudent approach to investing, but there still remain extensive restrictions.
Lang is not averse to a pure prudent man rule, which has become synonymous with freedom. His personal view is to strengthen the boards of pension funds and to enable them to take full responsibility for their investments. He also appreciates that existing rules do permit abstruse asset allocations and high risks. But despite this, the expert group will not propose to eliminate the restrictions, he says.
Lang believes the restrictions should act as guidelines for less sophisticated pension funds and force them to rethink their asset allocation, when they exceed the stated limitations. Exceeding their allocations to certain assets should only be permitted if a pension fund as a whole, including its controlling and member structure, can justify it.
Swiss Pension Fund Association ASIP has another point of view. Jean-Pierre Steiner, CIO of the Nestlé pension fund and president of a working group of ASIP, points out that investment rules are too slow to follow the innovation in financial markets. He believes, that pension funds are more sophisticated today than when investment rules were first introduced. He adds that more investment rules would only lead to an inefficient capital allocation , meaning an increasing cost burden on the pension funds.
Looking at the Dutch and Anglo-Saxon experience, both ASIP and Steiner are working towards the prudent man rule. In these countries funds have taken less risks and have failed less than in Switzerland. As such, Steiner concludes that the only restrictions that should be applied, should cover the leverage of the total assets and loans to the employer.
p The Swiss laws on pension funds are to be cemented. A major item is to introduce total equality of men and women and introduce more flexibility in retirement without financial losses for withdrawing beneficiaries. Furthermore, the limits on contributions should be decreased to include people with low incomes and part time workers into the pension fund system. The guaranteed return of 4% on individual accounts is being re-evaluated because of the lower interest rates. Eric Solenthaler