Financial sector gambles CHF 200 billion in retirement assets

Swiss retirement assets are growing and growing. But pensions have been falling for years. On the other hand, fees charged by the financial sector for the management of pension fund assets are increasing. It is now 20 billion Swiss Francs per year – paid by the insured.

These are management, property management and other services for pension funds of two billion francs, and asset management costs of five billion. There is also an additional billion for undisclosed transaction costs and brokerage commissions, advice and miscellaneous expenses for nearly twelve billion asset management.

These fees do not appear on any pension fund statements. Money gets lost in the opaque tubes of financial companies. Most policyholders do not know who is withdrawing how much from their retirement savings and where. Nor can you circumvent the system: Since 1985, the Federal Law on Occupational Aged, Widowed and Disabled Pension Plans (BVG) has forced employees to pay into the second column. You are not allowed to choose your own pension fund.

1200 billion in pension fund

The government gives more freedom to banks and insurance companies. They took control and replaced formerly corporate pension funds with billions of dollars of joint and collective foundations barely covered by the law.

In 1985 the Swiss pension fund had 150 billion Swiss francs. This is 55 percent of the gross domestic product (GDP). CHF 1,200 billion today – 160 percent of GDP. Financial institutions diverting more and more money into their coffers from social work have also grown by the billions. Wealth management spends the most – about 17 billion Swiss francs per year.

Asset managers justify costs with the central role they generate in the return they create for the insured. They do this mostly through active investment strategies: they observe, analyze and research financial markets and constantly come up with new investment solutions. It’s just: Yields have been falling for years – which is why more and more insured people receive only the one percent minimum interest rate on their retirement capital. Is it really not there anymore?

Active investment management isn’t the only way to increase retirement assets. Money can also be deposited passively. In this case, it is created to track a stock market index such as the Swiss Performance Index (SPI), which tracks major stocks on the Swiss stock market such as Nestlé or Roche. This form of investment essentially works automatically. The effort is significantly lower, which means there is much less pay. Tools: This method provides less returns for financial agents.

Would more risk bring more?

To date, no one has checked whether asset managers get the best return on Swiss retirement assets with their expensive investment style. Our research, documented in the new book “The Rent Debacle,” closes this gap. The result: If pensioners’ money had been passively invested with a 40 percent stake continuously since 1985, they would have 1,400 billion in their account today, not 1,200. And without the higher investment risk, as renowned consulting firm PPCmetrics confirms: “As of the end of 2021, the risk profile of the average Swiss pension fund corresponds to an investment strategy with an equity component of around 40 percent.”

With slightly more risk, that is, a risk of 60 per cent in equities, passive investment would yield an additional 400 billion francs for policyholders since 1985. The Swiss pension fund will be one-third larger.

Financial companies are not taken into account. They emphasize that active investing brings benefits that passive investing does not. Additionally, direct comparison of the two strategies is not possible as they often differ in content.

Boys have to pay for everything

The facts we’ve compiled in the “Pension Debacle” book come to a different conclusion: Insurers are deprived of billions in retirement so financial institutions can collect billions in fees. Help comes from politicians because various parliamentarians earn their own money – as board members, auditors, presidents of investment trusts, or board members of banks and insurance companies. They are not interested in regulating the pension fund market efficiently and introducing strong control to stop the outflow of wages.

Instead, they discuss increases in retirement age, reductions in conversion rate, and greater wage contributions. All measures that reach the heart of the insured – but not the financial sector. Lower costs and higher returns are urgently needed: According to UBS, the Swiss population aged 20-64 will increase by ten percent by 2060. During this time, the population over 65 will increase by 80 percent – ​​almost double. This rapid increase in the number of retirees puts a great pressure on the system. Young people suffer from it. You have to pay the pension fiasco.

If politicians in Bern care about the insured people they represent as MPs, they should turn the investment key in the pension fund market and declare the passive investment of at least the compulsory part of pension assets binding. This affects two-thirds of pension fund assets – CHF 800 billion. This simple rule will give policyholders much greater returns at a much lower cost. And with it a higher pension.

As long as nothing changes in the current system, the second pillar will remain as it has been since 1985: the wage-based profit apparatus of the financial sector fueled by compulsory insurance.