Media house “Blick” has published a book about the mismatch between pension funnds’ investment style and the interests of end clients. Rentendebakel (in German) makes the case for passive investment, less professionals and more shares than the classic 40:60 approach (shares:bonds). The article also points out the inherent inertia of policy makers and politicians, as they benefit from the current system.
I wonder: can we (the FIRE community) benefit if everyone did it our way or do we thrive mainly when flying under the radar and exist on the fringe of society? (edit: fixed typo)
Unreasonably high fees, unfortunately, are something that no one really cares about—if they even really understand it. This is tied closely to the fact that people, in general, know and care very little about finance.
Blick’s book will certainly be written in a very accessible way but it’ll hardly be a bestseller.
Those calculations seem to assume investment in low TER ETFs, that didn’t exist at the time. Then they assume that the change of allocation would’ve affected neither bonds, real estate nor stocks returns (so done on a paper trading account basically).
If you had billions less flowing into bonds, bonds would’ve likely returned more yield - conversely if you have billions more flowing into stocks, prices would’ve likely been higher and returns thus lower.
Of course there is still some merit to the point that the fees are too high, but putting absolute numbers and claiming them as fact is misleading.
Their proposed solution is also quite insane - you would just blow a big hole in the savings by forcing a reallocation. Who should buy up all that real estate? It would be sold at a loss.
Also, conveniently, they fail to mention that the proposed 60% stock allocation would’ve vastly underperformed in 2022 compared to the allocation actually in place.
While I want fees to go down for mutual funds that just replicate an index, I also don’t think it’s a good idea if the share of overall wealth invested passively is too high. Too much power for S&P Global Ratings etc. with a lot of potential corruption. I would argue passive investment only works as long as active investment is large enough to influence index inclusion by allocating funds with some sort of security analysis / strategy.
Great article! During the last bull decade, noone asked, noone cared. I think there’s going to be more pressure now.
It’s been scientifically proven time and time again that active management underperforms passive management.
Also, we often forget that 2nd pillar money is our money. So we should get more of a say in how it’s invested. I’m thinking of the 401k system. To me, 1% return on my 2nd pillar money is just a joke.
I’m sorry, but the “threat” of passive investing is a lie spread by the financial industry leeching off our money:
Are you serious? The classic 60/40 retirement drawdown portfolio has been studied back to 1871 by the Trinity study, Bill Bengen and many others. And you’re talking only about 2022? How does that even come close to being representative?! For as long as they have existed, stocks have always clearly outperformed bonds in the long run, and that’s what matters to the vast majority of us. It’s totally dishonest to just window-dress 1 year (or even 5 or 10 years).
Come on, man. What’s insane is that pension funds bought up all the real estate in the first place, driving up real estate prices and making it unaffordable for the average Swiss citizen to buy housing! Look at our neighbour countries, where else is real estate so insanely expensive?
If pension funds were forced to sell their excessive real estate, we could finally buy houses again at affordable prices. So I’m all in!
First of all, I want to reiterate that I was playing devil’s advocate. I don’t think the current system is good at all.
I also don’t think it’s an issue right now or will be an issue in Global stocks anytime soon. In Swiss stocks, however, a combination of hypothetically mandating passive investment allocation and Swiss allocation for BVG would shift things quite a bit. They manage 1 tn (1 Billion CHF).
Implementing such changes too quickly would have unintended consequences, which was basically also the same point I was trying to make with unwinding real estate allocations in favor of more stocks. It would probably be good to get there, but slowly and with some flexibility to avoid other market participants to from taking advantage of pension funds.
Actually, you can find such a treasure trove of information on the website below (FR/DR/IT). It contains the historical interest crediting rates (last 5 years), but also other interesting information such as current conversion factors, asset return, asset allocation, etc. Of course this does not include private or public autonomous pension funds, but I think all the collective foundations, semi-autonomous funds, and all insured solutions are listed. Enjoy!
For autonomous foundations, you probably won’t find a centralized source with individual information by fund. But you could always look at more global surveys to give you an idea of the credited interest rates overall. For instance, the annual survey report from the Occupational Pension Supervisory Commission (FR/DR/IT):
Technically you’re right: it is chosen by your employer. But I think that, given that the pension fund is arguably part the employees’ compensation package, it is conceivable that you (or a group of employees) could discuss / negotiate / lobby for a different or better pension provider.
Now I agree that it would boil down to how many people value the pension fund, how much leverage the employees actually have, what other companies in your industry are offering on average, etc., but it is conceivable
Well, technically the pension fund is chosen by a committee which should include an equal number of employer’s representatives and employees representatives.
So it’s the role of the employee’s representatives of your company to lobby/negotiate for a change. You can start by contacting them (the name often appears on the pension fund certificate).