SWITZERLAND – The chief economist of the Swiss central bank has backed the idea of individual pension accounts – saying they could boost labour mobility and “work effort”.

The comments come after the Pension Commission in the UK proposed the introduction of a funded national pension scheme with individual accounts, modelled in part on the Swedish PPM system.

“Labour mobility could also be enhanced by a reform in our pension system,” the Swiss National Bank’s Ulrich Kohli said in a speech prepared for the Osec Business Network Switzerland Podium in Zurich today.

“The free selection of a pension fund would allow workers to switch jobs without changing pension schemes, and vice-versa, thus giving them more freedom and flexibility.

“Indeed, there is no reason why the choice of employment should be linked to the choice of the provider of a financial service.”

Kohli, who’s an alternate member of the SNB’s governing board, added: “Elementary portfolio theory teaches us that it is unwise to invest one’s two largest assets (human capital and pension capital) in more or less the same institution.

“Furthermore, a system of widespread, transparent, individual pension accounts might do much to incite workers to increase their work effort.”

Meanwhile, Positive equity markets helped to slightly reduce underfunding at Swiss public and private pension funds in 2004, the government has reported.

Following a new survey of the funds, the Swiss Social Security Agency (BfS) found that 10.1% of them were underfunded at the end of 2004 compared with 11.2% at the end of 2003.

In the new survey, BfS queried 353 Swiss pension funds, down from the 486 queried to yield the 2003 result. This is due to consolidation with the sector.

The BfS attributed the improvement in underfunding to last year’s positive equity markets, adding that the trend would probably continue this year amid another solid performance of those markets.

Yet despite the improvements, the agency noted that the financial situation of many Swiss pension funds was still “strained”. This was partly due to the negative consequences of the bearish equity markets earlier this century, it said.

The agency also cited a recent survey from Swiss investment consultant Complementa which reflected that nearly half of private funds lacked sufficient financial might to deal with market fluctuations.

Hanspeter Konrad, managing director of the Swiss pension fund association ASIP, agreed with Complementa’s finding.

“The fact is that many funds should be given time to build more reserves to deal with those fluctuations,” Konrad told the Swiss newspaper NZZ.

ASIP is urging the government to cut the annual return which schemes must guarantee to 2% from 2.5% now. It argues that the move is crucial both because of the underfunding problem and because of what is being earned on bond markets currently.

According to ASIP, Swiss pension funds achieved a 6.2% return in the first half of 2005 – their best return since 2003.