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Friday 20 October 2017

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Swiss pension funds must adjust asset allocation to avoid funding shortfalls

Written by Natalie Tuck
16/02/17

Swiss pension funds need to adjust their asset allocation to avoid the threat of a funding shortfall, according to the Swiss Bankers Association (SBA).

The topic of pension provision in Switzerland is becoming ever more topical as the government is set to debate the ‘Pensions 2020’ reform in the spring. The SBA has conducted a study, The 3rd contributor to occupational pension plans – proposals for optimisation, which makes proposals for an improvement to asset allocation with the objective of generating high returns while maintaining the same level of risk.

Commenting, SBA chairman Herbert J. Scheidt said: “Without an adjustment to asset allocation, pension funds will face yield-related problems. This would translate into accepting the risk of a funding shortfall and cuts to benefits in the pension system for no good reason.”

One particular area of the focus of the study was investing in non-traditional investments. It noted that despite the environment for professional asset management changing significantly in recent years due to negative interest rates and other factors, asset allocation of Swiss pension funds has remained “virtually unchanged”.

It noted how their investment policies are still dominated by bonds, equities and domestic real estate, while non-traditional investments continue to play only a secondary role. The SBA said this is underpinned by the investment guidelines for occupational pension plans (OOB2), which still categorise assets in a traditional manner, which it said from today’s perspective set the wrong incentives.

Therefore, the SBA said a recategorisation under OOB2 is necessary in order to precipitate a change in investment behaviour.

For comparison, it highlighted that Switzerland’s investment performance lies at the lower end of the spectrum, yet countries with a greater share of non-traditional investments, tend to report higher returns.



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