The online magazine of the Swiss Bankers Association
March 29, 2017


“Pension funds are too cautious”

“Pension funds are too cautious”

Herbert J. Scheidt explains in an interview how pension funds can benefit from the expertise of banks.

To date, the discussions surrounding the “Pensions 2020” reform have paid too little attention to the issue of the so-called 3rd contributor. In a study, asset management experts have shown how this 3rd contributor can be strengthened. The Chairman of the Swiss Bankers Association (SBA), Herbert J. Scheidt, explains the contribution the banks are making to strengthening the pension system in Switzerland, and talks about the importance of the asset management industry for the financial centre and the work of the Bankers Association.

Insight: Why is the Bankers Association concerning itself with the pension system?

Herbert J. Scheidt: The pension system is an important issue, because it affects each and every one of us. Occupational pension plans, and in particular the question of how future pensioners will support themselves financially, are more topical now than ever before. The Pensions 2020 reform was the dominant political issue for the National Council and the Council of States during their spring session, and it will continue to be an area of focus not only for the government, but for us all.   

What is your assessment of the discussions surrounding the Pensions 2020 reform?

Foto Herbert J. Scheidt
Herbert J. Scheidt, President of the Swiss Bankers Association
The pension reform includes an overall package put forward by the Federal Council. This package is to enable AHV and pension funds to continue to work effectively in future. To this end, the Federal Council and Parliament want, for example, to increase the retirement age and decrease the minimum conversion rate; decisions that are certainly not popular in light of demographic developments, but which must nonetheless be discussed. The political debate is focused primarily on benefit cuts, such as the reduction of the conversion rate, upping the retirement age and increasing contributions. But a very important matter is being overlooked in these discussions, namely pension benefits, that is to say, safeguarding pensions for future pensioners. In our member institutions, we have broad and highly professional expert knowledge that we can use to create food for thought in this area. We cannot just talk about benefit cuts. We must also identify measures that will make a positive contribution to safeguarding the pension system.

What exactly are you referring to?

A significant share of the pension system is financed by the contribution made to it by the performance of the management of assets in the 2nd Pillar. This is why we call the investment returns generated by the pension funds the 3rd contributor. Employers and employees are the 1st and 2nd contributors. In the past, these investment returns accounted for almost 40 percent of the capital growth of pension assets. They were therefore the biggest source of financing for the 2nd Pillar, so greater than employee contributions and also higher than the contributions made by employers. However, in the last few years, the investment environment has changed fundamentally, and it would be reckless to fail to consider which investment strategies pension funds can pursue in order to ensure they continue to contribute their share to the pension system in future.

And the banks come into play here?

Yes. There are many asset management experts working at our banks whose customers include a great number of pension funds. They are therefore very familiar with the investment behaviour and practices of pension funds. And so last year, we started to do an in-depth analysis of this situation together with some of these experts. And the product thereof was the study “The 3rd contributor to occupational pension plans – Proposals for optimisation”, which was conducted under the leadership of Iwan Deplazes, Head Asset Management at Zürcher Kantonalbank and Chairman of the Asset Management Platform. The study brought to light surprisingly clear findings, which we then presented to the public at a press conference at the beginning of February 2017. I hear that it is generating a very high level of attention from a broad target audience, which includes politicians, the media, but also the pension funds themselves. And we have a very positive message for pensioners. To put it in simple terms, the message is: pension funds could generate higher returns with the same level of risk if they were to better align their investment behaviour with the changed investment environment. This is a topic that is undoubtedly also of interest to our insight readers. To give them a better overall picture, this issue includes a comprehensive overview of the results of the study.  

You mentioned asset management. I assume it was no coincidence that the SBA collaborated on the study about the 3rd contributor?

That’s right. Asset management is already one of the financial centre’s key pillars, and therefore also an important part of the work of the Bankers Association. We don’t just manage one-quarter of global private cross-border assets. In European comparison, Switzerland’s share of the asset management business is also above-average. We manage over CHF 2 trillion in assets in this segment, which means we have a leading position in Europe. In Switzerland, however, awareness of this fact is much too low among the general public, the government, but also within the financial community. We have to increase this awareness and place a greater focus on the concerns of the asset management industry. Asset management is a growth segment. Consultants expect this business to grow globally by around 6 percent annually leading up to 2020. That is far in excess of the average for the sector, and we want to take advantage of this growth to the benefit of the Swiss financial centre and Switzerland as a whole.      

What kind of progress have you made to date?

One of the first measures we introduced to this end was to establish the Asset Management Steering Committee within the Bankers Association. The members of this committee are high-level individuals from the asset management divisions of our member banks. This helps us create awareness for the important concerns surrounding asset management in Switzerland, and to incorporate these into the work of the Bankers Association in order to ensure effective lobbying. In a second step, we founded the Asset Management Platform together with the Swiss Funds and Asset Management Association (SFAMA). The platform bundles the key concerns of the entire asset management industry in Switzerland across associations. These concerns relate to the further development of the international business. And we of course also want to ensure that Switzerland continues to provide high quality asset management services.   

And the pension system is part of this?

Exactly. The technical expertise required to strengthen the 3rd contributor exists in Switzerland. Together with the major global asset management companies, the banks are the biggest asset managers in Switzerland. Pension funds, on the other hand, are important asset management customers, who are still, however, too cautious in terms of certain types of investments. So we are providing important food for thought in this area, that in the end will benefit everyone who pays into the 2nd Pillar.

In concrete terms, how does the SBA intend to change the established way of thinking?

One way is through the study that I’ve mentioned. It provides important food for thought for the public, our industry and the government. Now we have to do the necessary fieldwork, or in other words, explain our views, further develop them, and in doing so, be persuasive in terms of their substance. At a summit last fall, SFAMA and the SBA met with Federal Councillors Alain Berset and Johann Schneider-Ammann and presented their preliminary observations on the issue to them. These were set out in a memorandum that was then also signed by the two Federal Councillors. We also intend to further pursue this avenue.