As a slight offtopic, I wonder how much an “inefficient” investment of pension funds into Swiss Real Estate helps to mitigate lack of housing in Switzerland 
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Are you referring to some sort of minimum wage or something else?
Well, it may require less fees (gasp!) for ‚important anyones‘ that happen to have a strong lobby.
Did a quick search to find out how much costs pension funds incur.
According to the swiss federal audit office (published in 2022 with data from 2020):
- 4.3 mio. actively insured / 1.2 mio. pensions being paid
- 1’100bn. in total assets across 1206 pension funds
- 6.8bn. in total cost, of which 5.1bn. are actual asset management costs
Just for comparison, AHV manages 50bn. and has direct costs of 220mio (indirect costs of 300mio) according to NZZ
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I like universal basic income but that’s not what I had in mind. You have countries with sovereign funds, we have the SNB in some way, progressive taxation could be a part of it. The idea is to have the third contributor (investment returns) play a significant part also for low earning workers.
On the paper (and that’s a big caveat*) we should be able to work less as society progresses, or to work the same despite longer life expectancies. The actual mechanics of that can be debated but I don’t think we necessarily have to work more or have less pension as the mortality age increases, it isn’t a zero sum game.
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*Do you know the difference between theory and practice?
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In theory, there are none. 
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Wow, that’s interesting. So if we calculate just the asset management costs, that’s a fee of 5.1/1100 = 46 basis points, which is probably higher than anyone holding ETFs here. For comparaison, VT is at 7 basis points.
So @EPeon is right: the financial lobby is strong. Nevertheless, I don’t feel it’s correct to focus only on costs. We should look on the returns side as well.
Unfortunately, the returns are poor, and that is the underlying problem of the whole system.
From a Credit Suisse study (talk about lobby 
) we can see that returns averaged between 3.0% and 3.8% per annum during the 2004-2021 period (variations depend on the pension fund types). On average, pension funds only invested about 33% in equities, which historically is the best asset class. This is clearly inadequate!
So before trying to reform the system, pension funds should invest the money that employers and employees trust them with in a more performant manner. This is easily done and would avoid social problems with reforms making people pay more and get less pensions.
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I think they should aim for ~60% stocks. The Norwegian pension fund is close to that.
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Pension funds need to make sure they can pay the pensions people expect to receive…forever. They need to be conservative otherwise there’ll be a massive political and social shitshow. All things considered, a 3-4% annual gain sounds great to me from a mandatory pension fund (2nd pillar) which has the potential to be a lot larger than a 3A. That’s why we go more aggressive in our (optional) 3As.
Norway’s oil fund is so large that everyone could scratch their private parts for a year in Norway and it’ll still have money left over. I’ve also heard from friends (from Sweden, who used to bully Norway and consider them a dim-witted cousin, and now they’re envious) that the NO governments don’t know what to do with it, it’s the national treasure so nobody wants to harm it.
There’s an oft mentioned story of the manager of Nevada’s state pension fund who has nothing to do, he just invests in low-cost index funds, and bonds and outperforms complicated pension plans.
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Pension funds have assets but they also have to maintain a withdrawal rate for pensioners. It’s very complicated task and that’s why increasing equity exposure to very high levels is not so easy.
Even though I agree that returns need to be improved, I would like to say we should not think it’s very easy.
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This is a bit strange because the funds don’t cost much. If you look at all the funds that are used by VIAC, Finpension etc, they are quite low TERs. Those funds are either UBS or Swisscanto.
As you rightly mention, they invest about 33% in equities, so the lion’s share of cost probably comes from the other asset classes.
Depending on the ratio of emloyed persons to pension recipients and the coverage ratio (Deckungsgrad), a PF can’t just simply go with 60% equities or else they would be in trouble if the next financial crisis hits.
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The TERs of the index funds offered by VIAC and finpension are completely meaningless as VIAC and finpension pay additional fees to UBS/Swisscanto per their negotiated contract. Unless you’re privy to those contracts, the only meaningful reference cost would be Swiss-domiciled funds that are offered without an investment contract.
E.g. CSIF (CH) III Equity World ex CH - Pension Fund has a TER of 0.15% p.a. in the QB class.
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Well, maybe the cost difference is coming from active management vs index fund investing. I know that NL pension fund recently decided to go passive
I cannot imagine pension funds will pay higher fees to UBS to buy S&P 500 stocks.
Pension funds have a time horizon of 40 years before they pay out a pension. During that period, they can easily afford to be at least 50% invested in equities.
If Swiss pension funds had invested correctly in the past, we would be like Norway, and nobody would be even remotely suggesting a reform of pay more and get less.
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They don’t control redemptions, etc. though? (it’s a private market, a company can decide to switch to a different pension provider, but the fund still needs to pay pensions for current retirees) I think that makes it harder to invest long term since they’re forced to be more conservative.
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Well it’s not quite that simple and you know it! They have to manage a rolling need to pay out and to receive contributions, ideally match (not even beat!) inflation, model expected % of members taking pension in the next 1-5 years and how many new members are joining. I think 33% in equities is almost goldilocks territory.
Don’t forget Norway was scratching the ground for potatoes and fishing for haddock and mackerel until the 70s, and before that they were raping and pillaging the English countryside or being mercenaries to the Byzantine emperor (Harald Hardrada, what a boss of a human). I’d imagine the Norwegians worked out they had enough money in their capital reserve (the oil fund) that the risk-adjusted return of investing a big chunk of their pension fund into equities had a higher chance of being beneficial than not.
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And this aspect would go away with a single retirement fund rather than competing companies (but then many people will be opposed to that and prefer the private sector to handle it).
I guess that’s why retirement reform is such a complicated topic, so many tradeoffs 
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Absolutely! In many ways CH seems to take the best aspects of the US, and the best aspects of the rest of Europe and bundle them under state supervision but free market, like healthcare.
Sometimes I’ve thought that being forced to be with a specific 2nd pillar provider which is linked to the employer a bit of an unnecessary restriction, that’s my only annoyance with the 2nd pillar, otherwise I have no issue at all with it being opened to the free market.
Edit: re pension funds investing in equity, I believe that’s a hard pill to swallow for many. My experience with people is that most are psychopathic when it comes to the idea of giving away money to others, losing money (even if it’s paper loss). Most people lose their shit if they miss a 0.2 euro Pfand or the offer for pickled cucumbers they found on comparis got cancelled, it’d probably reduce life expectancy if they invested heavily in volatile equity.
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Reality is that when people are asked to choose for themselves , they also don’t pick high equity allocations. So it’s easy to say but hard to implement.
Check 1E plans asset allocation reports from PWC.
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I have to say I am laughing at comments from @Mirager
Life expectancy going down with 0.2% paper loss
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