Many people are only slowly beginning to realise the harm low to negative interest rates are causing and, without a lobby, the concerns of savers and pension funds are hardly taken seriously, the head of the board of trustees at Swiss multi-employer pension fund Profond told delegates at a trade fair in Zurich yesterday.

All of Swiss pension funds’ assets have been affected by the low to negative rates environment, said Olaf Meyer, criticising central banks’ monetary policy as “politically motivated redistribution” of financing from the private sector to governments.

Prices have become political prices rather than market prices, he said, adding: “We’re no longer operating in a market system.”

He said Swiss Pensionskassen were faced with low yields in listed and unlisted assets, a domestic currency that had become a burden and a large gap between members’ pension expectations and the yields attainable via traditional investment strategies.

Picking up a point made earlier by Dewet Moser, alternate member of the governing board of the Swiss National Bank (SNB), that real interest rates were still positive, Meyer said it was very difficult to explain this to individuals who tend to think in nominal terms.

“That’s something we have to live with,” he said.

As to how Pensionskassen can respond to the rates environment, there are two main choices, according to Meyer – adjusting investment activity (by buying real assets and hedging exchange rates, for example) or adjusting benefits.

The latter is already happening in Switzerland to an extent that has not been seen for a long time, he said.

By way of conclusion, Meyer noted that unlisted assets had become more attractive and that a failure to change investment strategy would entail lower benefits at most Pensionskassen.

Monetary policy needs to become a more substantial part of Pensionkassen’s new investment strategies, he added.

Meyer’s presentation came after the SNB’s Moser acknowledged that negative rates were a burden for Pensionskassen but also argued that the direct negative effect was limited.

He defended the removal of the cap on the Swiss franc/euro exchange rate in January 2015 and the introduction of a -0.75% deposit rate the following month, saying the negative rate was working even though it is “not a magic cure”. 

As for the impact on Pensionskassen, he said he understood negative rates were a burden but that he could not offer any prospect of relief, as they were unlikely to disappear any time soon.

When the Swiss central bank set interest rates at -0.75% in February last year, the country’s pension funds called for an exemption, asking to be granted accounts at 0% interest with the SNB instead – the request was denied.

Moser yesterday said the international low-rate environment was the bigger challenge for Pensionskassen than the domestic situation but that, together, these still only represented “the tip of the iceberg”.

Far more important, according to Moser, are aspects such as increasing life expectancy, investment regulations and the conversation rate applied by pension funds (Umwandlungssatz).

He called for political solutions, saying Swiss occupational pension provision needed to be reformed.

He declined to comment on the nature of such reform, however, saying later that, although he deliberately mentioned the need for reform, he could not elaborate, as this was not a matter for the central bank.

The call for reform is by no means new in Switzerland, and the topic is the subject of much debate – and some concrete action.

A reform package is in the midst of going through Parliament, with Altersvorsorge 2020 (AV 2020), as the package is known, having most recently been part of a three-day debate in the lower chamber earlier this month. The relevant committee, the commission for social security and health, is due to discuss AV 2020 again on 12-13 May. 

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