Despite the consolidation process that has been underway in the second pillar for a number of years, the number of collective and joint institutions has remained stable. There has also been a sharp rise in the assets they manage. Published today, the Credit Suisse pension fund study – which is based on a survey of over 100 pension funds – analyzes possible reasons behind this growth. The study also examines why the investment strategy of collective and joint institutions barely differs from that of other pension funds, despite the fact that they have a younger age structure, for example. Collective and joint institutions are likely to attract greater attention from legislators and the regulator due to their increasing importance as well as the growth in competition.

The number of second-pillar pension funds has steadily declined since the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (BVG) was introduced in 1985. At the same time, however, the volume of assets has increased continuously: At the end of 2021, there were total assets of around CHF 1,200 billion, split between 1,385 pension funds. Half of this capital is held by collective and joint institutions (CJI), compared with a figure of just 20% eight years previously. A major reason for this long-term consolidation process is increasing regulation, which is more difficult for small pension funds to cope with than it is for their larger peers. In addition, various employers are likely to seek membership of a collective or joint institution – particularly a joint institution – to reduce the risk of a restructuring. What's more, it is often difficult to find suitable employee representatives for the Board of Trustees – not least in view of the associated responsibilities and potential liability risks. In our pension fund survey, 58% of participants said they expected this consolidation to continue at the same rate or even faster while 40% expected a slower pace.

Similar investment strategy despite differences in risk profile and benefits level
Collective and joint institutions tend to have very similar investment behavior to that of other pension funds. This is surprising at first glance, given that the age structure of collective and joint institutions – which is younger on average – has a positive impact on risk capacity. At 66%, the proportion of active insureds in the pension capital of active insureds and pensioners in collective institutions was significantly higher compared with the other pension funds (59% in the case of joint funds, 58% for pensions funds with only one employer, and 52% for pension funds with multiple employers) at the end of 2021. At the same time, collective and joint institutions run the risk of losing their insureds to other competing collective and joint institutions. This can result in reduced planning security and negative dilution effects. Half of the collective and joint institutions in our survey stated that there are currently no provisions for mitigating these dilution effects. Our analysis shows that in overall terms the key factors determining the investment strategy provide a similar starting point compared with other pension funds. The very similar asset allocation can be justified on the whole.

Growing attention from legislators and the regulator
The interest of most collective and joint institutions in growing and acquiring new members contributes to an attractive and diverse range of pension solutions. This is reflected in the competitive benefits delivered by the average collective or joint institution – for example in terms of interest on retirement assets or conversion rates. In order to be able to offer attractive benefits, collective and joint institutions also strive to optimize processes as well as organizational aspects and make them more efficient. In this competitive environment, however, sufficient attention also needs to be paid to the conflicting objectives of growth and stability. In 2012, the legislature therefore passed Art. 46 BVV 2, which stipulates that benefits can only be improved once fluctuation reserves of 75% have been accumulated. In our opinion, two scenarios merit special attention: If the consolidation phase in favor of collective and joint institutions ends and competition among them continues to increase, the risk of affiliation changes is likely to become more pronounced. Another sensitive issue is prolonged market turbulence, which could lead to underfunding and accelerate affiliation switching at what is a bad time for many collective and joint institutions. To date, Swiss pension funds have proved resilient and adaptable – and there have certainly been some challenges over the past two decades. Given their increasing importance, however, legislators and the regulator are likely to pay greater attention to the specific requirements of competing pension institutions.

Clear distinction between collective/joint institutions and company pension funds
Our survey of decision-makers at Swiss pension funds shows that relief from responsibilities for employers and employees alike is the biggest benefit of collective and joint institutions (see Figure 1), with over 60% seeing collective and joint institutions as being at an advantage in this regard. In addition, collective and joint institutions perform better than independent pension funds when it comes to the criterion of "professionalism and expertise in pension fund management." The number-one criterion favoring a company-owned pension fund – as cited by around 89% of participants – is the stronger link between the employer/Board of Trustees and the pension fund. In addition, company-owned pension funds fare significantly better than collective and joint institutions when it comes to flexibility in terms of pension fund management or when defining investment strategies. However, various collective institutions likewise allow for a high degree of individualization these days.

The Credit Suisse Pension Fund Study 2023 entitled "Collective and joint institutions: Growing responsibility" and a video on this topic are available in German and French at:
credit-suisse.com/pensionfundstudy
 

Fig. 1: Survey results on membership of collective/joint institution vs. individual pension fund
Percentage of responses to the question: "Do the following criteria generally apply to a pension fund of an individual employer (individual pension fund) or to membership of a collective or joint institution (excluding full insurance)?;" in %