SWITZERLAND - Increasing regulation on investment limits and higher demands on Pensionskassen regarding pensions benefits guarantees is hindering the growth of pension funds, a father of the Swiss pension system has claimed.

Speaking at a conference in Lausanne, Switzerland today, hosted by the Austrian Pensionskasse OePAG, Heinz Allenspach, former MP and member of the employers' association, said: "Many of the new regulations are limiting the freedom of choice for pension funds which they need to flourish."

Allenspach helped create the mandatory second pillar in Switzerland during his time at the association and in parliament between the 1970s and 1990s, the legislation for which was finalised in 1985.

He cited the minimum interest rate Pensionskassen have to guarantee and the conversion rate used to calculate pension benefits on retirement as among the major problems for pension funds.

Both rates are currently fixed following political debates rather than relying solely on actuarial assumptions and the situation of the financial markets, Hanspeter Konrad, director of the Swiss pension fund association ASIP, added.

"It is wrong to set the minimum interest rate in advance before actual returns for the year are known," Konrad said.

ASIP suggests guaranteed interest rates should be scrapped.

"Instead pension fund boards should decide on the rate with the obligation to pass any surplus returns at the end of the year on to pension fund members," said Konrad.

Allenspach argued politicially-motivated rates create a disadvantage for new pension fund members, as it forces them to pay for the benefits of older members.

"This is like introducing elements of a PAYG system into the funded pension sector," the former MP explained to IPE. "And once such elements are introduced, they are very hard to get rid of again."

Another complication is the investment limits placed on pension funds, he added. 

Many Pensionskassen are already applying for exemptions to the 50% cap on equities or the 30% cap on Swiss equities and can do so as long as they prove they can take the extra risk.

Earlier this year, ASIP tabled a suggestion on a revision of the pension fund law BVG, which would include a switch to the ‘prudent person' principle and getting rid of legislated investment caps.

However, Konrad said not all ASIP members themselves are convinced about such a change.

"Some say the maximum investment limits are not bad at all because it means they have to make fewer decisions themselves."

Konrad said ASIP will renew discussions on this issue as well as others, such as the proposed regionalisation of pension supervision, after the parliamentary elections in autumn 2008 as election campaigning makes the lobbying process them even more difficult.

"Hopefully the new parliament will take a fresh, unbiased look at things," he said.