The Swiss government has ruled that all local pensions funds must vote in all the annual general meetings (AGMs) of Swiss companies in which they hold a stake.

Earlier this spring, the majority of the Swiss electorate voted in favour of an initiative aiming to cap bonuses for managers and increase active shareholder participation – including by pension funds.

In the first draft of the resulting decree, the government considered allowing Pensionskassen to not attend AGMs, or to abstain from voting, if such a move were deemed beneficial for members.

However, in the final version of the decree, the government has ruled out the possibility of not attending the AGM.

Simon Heim, a pensions lawyer and consultant at Towers Watson in Switzerland, said the government would now require “absolutely mandatory shareholder engagement”.

“There is still the possibility for Pensionskassen to abstain from the vote if it is in the interest of their members, but participation in the vote at AGMs is absolutely mandatory,” he said.

Heim repeated his criticism that this possibility of abstention was effectively increasing ’no’ votes, as Swiss corporate law requires an absolute majority.

“This has to be seen as a considerable interference with pension funds’ autonomy,” he said.

Heim added that the additional regulatory burden would increase costs, especially at smaller pension funds, and mostly benefit proxy advisers.

“Additionally, it will drive more investors away from direct equity holdings to investing in fund structures – which is unlikely to be what the initiators of the campaign intended,” he said.

The Swiss pension fund association Asip also criticised the amendment to the decree, asking why abstaining from taking part in the first place should no longer be possible, as this could also be in members’ interests.

The decree will serve as a legal basis until Parliament has passed a law – which might “take another few years,” Heim said.

In the final wording of the decree, there is also a minor change to the reporting duties for pension funds.

Apart from reporting on their shareholder engagement once a year, they are now also required to present a detailed account on their voting position, should it diverge from what the supervisory body has recommended.

If a pension fund does not comply with any of the requirements, board members will only be fined if they had known about this non-compliance in advance, while, in the first draft, “possible intention” had been given as grounds for punishment.

The decree will take effect as of 1 January 2014, and, from then, pension funds will have one year to comply.

Those who first launched the initiative have argued that this is “too long a transition period”.

Additionally, they have called for the regulations to be applied to the first-pillar AHV fund, “the largest Swiss shareholder”.

However, according to Swiss law, the AHV is not a Pensionskasse and therefore does not fall under the decree.

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