The move to defined contribution in Switzerland might have been expected to introduce greater individual choice about the level of investment risk, the size of contribution and the type of benefit.
However, Swiss DC plans still have some way to go before they begin to match the multiplicity of choices offered by their Anglo-Saxon equivalents. This may be partly to do with the nature of the Swiss Pensionskasse, where the risk is born collectively by the pension fund rather than individually by pension plan members.
“There is still group thinking at the forefront of Swiss pension schemes and that is why the Swiss DC system has never gone as far as the US system in individualising contribution rates, benefits or asset allocation,” suggests Graziano Lusenti, pension fund actuary at Robeco Asset Management in Geneva.
The reluctance to push for investment choice may also have something to do with the sizeable proportion of the total pension contributions paid by employers, he says. “When you look at the financing of the pension plan, you see that three fifths of the total is paid by the employers and two fifths by the employees. People are realising that if you take the individualistic route then employers will be reluctant to finance that much.
“So although people would like some more freedom in their plans, they realise that this freedom would come at a cost. This is likely to hold back the development of more individual DC plans in Switzerland.”
However, some companies have pioneered investment choice, notably the Sfr5.5bn (e3.7bn) ABB Vorsorge pension fund in Baden. This offers three styles of investment – conservative, balanced and aggressive – within three types of fund which it calls Standard Minus, Standard and Standard Plus.
The options are available each level of the pension plan: the basic mandatory pensionskasse with an annual insurable income of Sfr24,720 up to a ceiling of Sfr124,720; the supplementary pension plan, with an annual insurable income of Sfr124,720 up to a ceiling of Sfr244,720; and the death benefit plan (where only the Standard and Standard minus options are available).
But this scheme, although well-established, is still considered pioneering. More typical is a mezzanine DC solution where a plan, offering investment choice to higher paid employees, is operated on top of the mandatory pension plan.
Julius Baer Asset Management in Zurich is marketing an investment choice product called “Instividual”. Hans Joerg von Euw, marketing director at Julius Baer, explains: “With the arrival of the DC plan there was a need for more freedom of investment , especially for the high ranks of management. In the part of the pension plan that is above the minimum, typically called a ‘bel étage’, we thought that we could offer a solution by which the individual investor can invest via the pension plan but as an individual rather than as an institution.”
In the Instividual plan, investors are offered three possible investment strategies with different risk profiles and asset weightings: conservative (20% equities and 80% bonds), balanced (40% equities and 60% bonds) and dynamic (50% equities and 50% bonds). All these risk profiles remain within the BVG investment guidelines, with a 50% maximum for equity allocation.
This is the typical strategy, but there are other possibilities. “With some of our clients we have established three pure mandates – cash, bonds, equities – and the employees can choose individually any combination of the three,” says van Euw.
Julius Baer set ups and manages the plan and calculate the performance of the three mandates. “Each of the three components of the plan are operated like an in-house mutual fund where the employee is able to buy units,” says van Euw. “This way you do not have the cost of mutual funds. We find this is cheap, efficient and tailor-made to the needs of the client.
“We don’t handle the administrative part of the individual employee account calculations – that is part of the work of the pension plan – but we link with the pension plan by them providing them with the number of units each month and the value of the three mandates.”
Rebalancing is an important part of the plan’s management, he says. “We have very close restriction of how much we deviate from the recommended standard solution for equities in the dynamic investment category benchmark. If they go to 53% we will sell 3% and rebalance to 50% so they are never in a situation where they can go from 50% to 60% and then they lose everything down to 45%.”
Plan members are encouraged to base investment decisions on their stage in the life cycle.
It is possible to lose money on these schemes, which are not covered by the guaranteed return of 4%. Consequently any negative performance by the bel etage funds is passed on to the employee. It is not surprising that, in the past year, demand for these kind of plans has waned.
However, bel étage schemes typically account for no more than 10% of a DC pension plan member’s investment. The rest is safely tucked away in the mandatory scheme below, with its guaranteed return of 4%. Perhaps this explains why, in general, the Swiss have no great appetite for investment choice. They are currently better off without it.

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