SWITZERLAND - The new Swiss supervisory authority and its regional subsidiaries will have to focus on solvency questions and ensure good communication among all market players, according to researchers at the University of St. Gallen.

Commissioned by the Swiss government, the academics studied the supervisory structures of pension fund systems in six countries - Germany, Austria, Sweden, the Netherlands, Canada and Japan - and compiled recommendations for the Swiss supervisory landscape, which is currently being re-drawn.

One of their recommendations called for an "adequate measuring of Pensionskassen solvency" - combined with a "clear definition of possible actions to be taken by the supervisor".

They warned against relying too much on the funding level - a historical measure - as an indicator of sound health.

Instead, the supervisory authority should set up a risk-based traffic-light system for Pensionskassen that could act as a simplified Swiss Solvency Test, as Pensionskassen liabilities are easier to calculate than those of other institutionals such as insurance companies.

The study identified a trend in many countries toward a risk-based supervisory structure, but stressed that there was no single model applicable for all countries.

The authors wrote: "The switch from conventional to risk-based supervision will require a cooperative, trust-based relationship between the supervisory authority and the pension funds subject to its supervision."

Another international trend was the integrated supervision of all financial market players in one country. However, the academics at the University of St. Gallen warned there could be a danger of creating a "state Leviathan" in some countries and that structures had to be adapted according to local needs.

The Swiss Federal Social Insurance Office, commenting on the government's decision to create a regionalised supervision system for Pensionskassen with a federal higher supervisory commission, said: "The devolution of direct supervision brings the system closer to the pension funds and to the insured, and a depoliticised supervisory system is better able to adapt to the ever-more rapidly changing economic conditions."

According to the study's authors, efficient supervision relies on "effective communication, coordination and cooperation between the different bodies", rather than on whether it is an integrated supervisory authority or not.

See the December 2010 issue of IPE for more on Swiss pensions supervision.