Elias, what are the biggest challenges for pension funds at the moment and what measures can be taken to address them?

“Demographic change and the ongoing low-interest-rate environment pose significant challenges for pension funds. The BVG (Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans) reform was rejected in the referendum of September 2024. A central element of this reform was the much-discussed reduction of the conversion rate from 6.8% to 6.0% in the mandatory BVG area. Despite the urgency, pension funds continue to have to work with an unchanged framework due to the Swiss people’s rejection of the reform.

“Meanwhile, the reform backlog continues, and the legally set conversion rate of 6.8% still does not correspond to reality, implying an unrealistic interest guarantee of around 5% due to today’s life expectancy. It should be noted, however, that pension funds have more freedom in designing benefits in the non-mandatory area; among other things, they can set the conversion rates lower. In fact, the average conversion rate in 2023 was around 5.3%, which shows that pension funds are making use of this option. Nevertheless, the legally enshrined conversion rates pose significant challenges for pension funds. They must build up reserves for future retirement losses, which in turn put a strain on the interest on the assets of active insured persons. It’s the younger insured people who are still working that bear this burden, by having to accept lower interest on their non-mandatory pension assets.

“One way to avoid this unfair redistribution is in this precise area of ​​non-mandatory occupational pensions. For example, companies can protect employees with salaries above CHF 136 080 (as of 2025) from redistribution by offering them a 1e pension solution. This enables insured people to invest their retirement savings according to their individual risk profiles. The return achieved, whether positive or negative, is credited or debited directly to the individual’s pension savings without any redistribution to pensioners.”

What advantages does a 1e pension solution offer for the employer?

“Offering a 1e pension solution can be an important part of a competitive remuneration package, positioning you as an attractive employer. Employees are paying more and more attention to the structure of their employer’s pension fund. When they’re considering changing jobs, the pension solution that’s being offered may influence their decision about whether to stay in their current role or move. Quite simply, a 1e pension solution may help you to attract the best candidates. Another advantage of a 1e pension solution is that the employer doesn’t face any pension restructuring risks because there’s no risk of under-funding. Last but not least, the costs for risk benefits in such solutions are often lower.”

What does Julius Baer offer intermediaries in this area?

“Julius Baer collaborates with various pension and vested benefits foundations. These, in turn, work with intermediaries to manage their clients’ pension assets. We act as the depository bank, while our partners cover the pension-related part and take care of administrative matters.”

What are the advantages for intermediaries?

“By expanding its range of services to include pension solutions, intermediaries are able to provide their clients with comprehensive advice. Furthermore, they can coordinate the client’s investment strategy in the pension scheme with the one for private assets. They can provide a complete investment service, becoming a one-stop shop. Think of the following practical example: From a tax perspective, it can make sense to hold high-dividend shares in your pension fund, while investment vehicles with capital gains potential should instead be held as private assets. Within such solutions, intermediaries can tailor the investment strategy individually, and there is also the option to make direct investments in stocks and bonds.”

Are there special investment guidelines that must be observed when managing pension funds?

“When managing pension fund assets, the investment regulations of the Ordinance on Occupational Retirement, Survivors’ and Disability Pensions (BVV 2) apply. Based on these regulations, the board of trustees of the pension or vested benefits foundation must draw up its own investment regulations that need to be adhered to when investing pension assets. The BVV 2 regulation in question provides for category restrictions, such as a maximum equity quota of 50%. However, pension or vested benefits foundations can deviate from this in their own regulations and allow higher equity quotas, as long as the principle of appropriate risk distribution is maintained. In fact, many 1e pension and vested benefits foundations today offer insured persons the opportunity to invest up to 85% or more of their pension capital in shares.”