Switzerland’s top pension fund supervisor has hailed an increase in cost transparency that consultancy c-alm laid out in a new study.

According to OAK BV, the study, which it commissioned on request of trade union and employer bodies, had concluded that regulations the supervisor issued in 2013 on the disclosure of asset management costs had had the desired effect.

“Not only are the regulations being implemented by the pension funds very conscientiously, with a cost transparency ratio of almost 100%, but they have also indirectly promoted the disclosure of investment costs for collective investments,” the commission said.

The latter point applied in particular to alternative investments, it added.

The supervisor relayed the study’s finding that pension funds’ accounts had become significantly more informative since the adoption of the 2013 regulations.

Reported asset management costs now stood at almost 0.5% of pension funds’ investable assets, up from around 0.13% since before the new regime.

In its report, c-alm consultants highlighted a slight downward trend in average asset management costs in 2016 and 2017, and a substantial reduction in the dispersion of asset management costs in the total pension fund population.

The pension supervisor suggested that, in light of the prevailing investment environment and a shift to more expensive alternative assets, the “investment behaviour of pension funds is increasingly cost-efficient”.

According to OAK, the 2013 regulations also had a positive “steering” effect on the country’s pension funds, in that they themselves now attached great importance to the cost transparency of the products they use.

The supervisor also reported that the authors of the study had given good marks overall to those responsible for investments at pension funds.

Pension fund members benefitted from the pricing advantages large investors could obtain, while below average performance internationally was mainly attributable to significantly lower interest rates in Switzerland, and not to below-average investment performance or to inappropriate investment guidelines.

The c-alm consultants also wrote that they saw no need to add to the cost transparency information required to be disclosed, and no need for a shift to a prudent investor rule for Swiss pension funds.

The background

The regulatory requirements from 2013 implemented rules introduced by the government as part of a structural reform of occupational pensions. In 2011, a survey of asset management costs commissioned by the Swiss social ministry – also carried out by c-alm – had found that the country’s pension funds were grossly underestimating the costs.

Before 2013, the only asset management expenses pension funds had to state were those directly charged to the pension fund in connection with the implementation of its investment activity. Costs and fees charged within collective investment schemes as well as part of the transaction costs were disregarded.

Since then pension funds have been required to declare a total expense ratio (TER) for each mandate or fund, and to identify details for every provider or vehicle for which a TER was not available. 

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