"Too many pension funds find it difficult to invest assets efficiently and cost-effectively"

Adriano 2

Adriano Lucatelli
Founder and CEO Descartes Finance

Adriano B. Lucatelli is a recognised financial expert with extensive management experience. Before founding Descartes Finance in 2015 he worked for several years in senior positions at UBS and Credit Suisse in Switzerland and abroad and taught at the University of Zurich. His studies have taken him to the London School of Economics and the Wharton School, among others. The Swiss business magazine Bilanz listed him among the top 100 most influential Swiss bankers.


Switzerland has said yes to higher AHV payments. Basically, this seems right: the AHV was no longer able to fully fulfil its mandate of securing livelihoods.

Securing a livelihood is the task of the system as a whole, not specifically of the AHV. This objective was not jeopardised on a large scale even without the pension increase that has now been decided. For me, the result of the vote is a serious fall from grace, a breach of the intergenerational contract. Until then, the electorate had tended to vote sensibly on government spending. If a "buy now, pay later" mentality has now taken root, that would be dangerous. As we know, there is no such thing as a free lunch.

The unresolved issue of financing the 13th AHV pension now threatens to attack and weaken the 2nd pillar. What would this mean for the entire pension system?

I also expect that there will be attempts to weaken the 2nd pillar and to unleash a dynamic towards a single fund. That would not be a good thing. In our three-pillar system, the AHV stands for solidarity, the 2nd pillar embodies a patriarchal element (compulsory savings) and the 3rd pillar represents personal responsibility. Each of the three elements has its strengths and weaknesses. Overall, they have been well balanced to date.

In Switzerland, there is limited understanding of the BVG, which secures capital market returns for every insured person's pension. The AHV, which is subsidised by tax contributions, is more popular. Why is that?

Many people see the AHV as a practical application of the Swiss co-operative concept: people show solidarity with each other. The rich neighbour gets exactly the same amount of AHV as you do, even though he has paid much higher contributions. This strengthens the feeling of togetherness. Added to this is the fact that the introduction of the AHV in 1948 is regarded in the country's political folklore as an important success for the left. This romantic relationship is perhaps historically justified. But today's AHV, with its structural over-indebtedness and cross-financing from the federal budget, has moved very far away from its historical roots. Today it has a completely different dynamic than when the AHV was founded almost eighty years ago, when a 65-year-old man had a remaining life expectancy of 12 years and a 65-year-old woman still had an average of 13 years to live.

The BVG's asset management costs serve as an attack flank from left-wing and trade union circles, while the returns achieved are concealed. Should asset management cost nothing?

Good asset management always costs something. Incidentally, it also does in the Compenswiss equalisation fund, which manages the AHV reserves. There it is 19 basis points (0.19 per cent per year). According to Swisscanto's pension fund study, the average for pension funds over the last five years is 48 basis points (0.48 per cent). As long as the pension funds achieve good returns, I don't see this as a problem.

What is the problem with our occupational pension scheme?

There are too many pension funds, especially small ones, that find it difficult to invest pension assets efficiently and cost-effectively. In addition, returns have suffered over the past decade as a result of the politically desired low interest rates. In addition, the investment policy is too heavily politically regulated. The legal provisions force pension funds to invest excessively in property and bonds, which exposes them to a huge interest rate risk.

Would a free choice of pension fund be the way to make the system more efficient and professional overall?

I am convinced that this would clearly be a better system. Because the pension fund is currently the responsibility of the employer, many insured persons have very inadequate knowledge. Surprisingly many do not even realise that the pension fund money belongs to them personally. This would certainly improve if insured persons were free to choose their pension fund. The market would play better, the whole system would become more transparent and more open to innovation and digitalisation.

Pension funds should also increasingly achieve a sustainability return and invest in ESG investments. Is this in line with the actual legal mandate?

The Occupational Pensions Act (BVG) mandates pension funds to manage assets in such a way that "security and sufficient return on investments, an appropriate distribution of risks and the coverage of foreseeable cash requirements are guaranteed". In other words, the aim is to maximise investment returns with a very low level of risk, which is largely determined politically. The law does not mention a sustainability return. In my opinion, this is correct. Firstly, in view of the extensive property investments of many pension funds, such a mandate would be extremely difficult to implement and also expensive. Secondly, the political corset is already far too tightly meshed when it comes to investment decisions. Additional ESG rules would lead to a further politicisation of investment policy. This would make the universe of permissible investment decisions even smaller, which would be at the expense of returns.

The 3rd pillar is currently seen as a means of filling the pension gaps that arise with AHV and BVG to secure the standard of living. The asset management costs in pillar 3a, on the other hand, are hardly a public issue. Why?

Because they are extremely low. Many people invest their pillar 3a very defensively in cash, i.e. in a bank account. The third pillar is the only area of the Swiss pension system that is truly governed by private law. The innovation that has taken place in pillar 3 custody accounts in recent years shows that the market is working. Digital providers that invest very closely to the index, such as Frankly or Descartes etc., have very low administrative costs.

What should be changed in the 3rd pillar so that its benefits are more widely and better utilised?

In view of the difficulties with AHV and BVG, we should motivate people to save in the 3rd pillar. To this end, the tax incentives for personal pension provision should be expanded. At the time of payment, the tax-deductible contribution should be doubled from CHF 7,056 to at least CHF 14,000 per year. I also believe that 3rd pillar benefits, like pension benefits in general, should be exempt from income tax at the time of payment. People tend to forget that anyone who voluntarily saves retirement capital in the 3rd pillar and invests it is making a contribution to their financial independence in old age. In doing so, he or she relieves the burden on the general public. This is associated with decades of forgoing consumption. It would also be desirable to relax the tight time limits for contributions. The proposal by Councillor of States Erich Ettlin that you can make up for a missed annual payment over five years is a step in the right direction. However, I would like to see much more flexibility in the payment deadlines. The current regulation is no longer appropriate in view of today's volatile employment relationships.