Pensions: Redistribution or more risk ?

The advisory council “Future of the financial centre” presented the Federal Council with its annual report 2017. With regards to future pensions and the financial sector, it highlights some interesting facts and thoughts.

With a conversion rate of 6.8%, the available capital, with a constant interest payment of 1%, will last for 15 years, with an interest of 3% 20 years. In the current low yielding environment the “third contributor” is not contributing enough, which is resulting in cross-subsidisation from active people to retirees. In 2015, this amounted in the second pillar system to 5.3 billion. De council comes to the conclusion that there is a missing automatism, which adjusts the conversion rate to the social and economic changes and hence takes into account rising life expectancy and the low yielding environment with reduced investment returns.

A second point, which the council discusses in it reports, is the tight corset for investment of pension fund assets, which leaves little room for a promising mix of investments and risks. Here the group starts a reflection of removing the traditional investment guidelines based on limits and to replace them with a code of conduct for people in charge of pension funds. The Prudent Investor would have more freedom, but would at the same time carry bigger responsibility.