> Pension Funds Insider> New Swiss pension administration fee study challenges scheme rip-off reports
A Swiss government study of pension fund administration fees has concluded that they are "reasonable" and that any reduction in administration service costs would require "simplifying" the occupational pensions system in Switzerland
The report of the study has provided the industry with some much needed relief at a time when it is facing widespread hostility on the amount it charges savers, with the State Secretariat for Economic Affairs and Federal Social Insurance Office having found that combined administration fees for Swiss funds amount to 1.8 billion Swiss francs per year (£1.2bn).
The combined fee level amounts to a 391 franc (£267) administrative charge on each Swiss pension saver per year. The report claims that 44% of the fees are borne by the funds themselves, 40% by life insurers and 15% by employers.
Swiss pension funds have been pleased by the report's conclusions that management fees are easily explained and reasonable. An introduction by key government pension figure Martin Kaiser-Ferrari said that "one important conclusion of this study is that a large proportion of the tasks and events which impose a high administrative burden can be attributed to the basic principles on which the second pillar is founded. The costs can be directly explained by the adoption of the fully funded method, the autonomy of the pension institutions and the large number of different pension institutions and pension solutions available."
Administrative needs such as building pots for new pension savers were argued to be a major reason for charging fees. The report stated that "for pension funds and companies, processing entries and exits and salary changes are together responsible for the majority of the costs. Although processing salary changes and entries/exits are inexpensive individually, the large number of cases per year nevertheless adds up to a high proportion of overall administrative expenditure".
Data servicing and providing information to members were also identified as significant cost elements, costing the whole industry 250m and 160m Swiss francs respectively.
The study suggests that "a reduction in administrative costs could therefore be accomplished only by simplifying significantly the occupational pensions system".
A separate report released earlier in the summer, compiled by consultants c-alm, claimed that Swiss pension funds face a combined yearly bill of 3.9 billion francs in fees (£2.6bn). This study included investment management and marketing fees in addition to administrative costs and was greeted as authoritative for tracking indirect asset management fees that are often not declared to pension funds.
Several pension funds were upset by a recent television documentary that used the conclusions of the c-alm study to argue Swiss pension funds were "throwing money out of the window."
TV broadcaster Schweizer Fernsehen's investigative current affairs show Kassensturz was attacked by Swiss pension fund association ASIP for accusing pension funds of gambling with retirement savings. The association wrote in its official blog that the show amounted to 'biased' journalism that "formulates a theory and researches it until it has collected enough material to prove it. Anything that argues against that theory is simply suppressed."
The study found that pension fees averaged 0.56% per year in Switzerland, a figure argued by pension funds at the time to be reasonable and favourable to charges in other countries.
Pension fees have been a major political topic in Switzerland over recent years, making funds highly sensitive to the issue. The argument that pension funds are charging savers excessive fees in order to benefit the financial industry is seen by some as being a decisive factor in the rejection of 73% of voters of a proposal to reduce the national conversion rate in a referendum of 2010.
The Swiss pension fund association wrote in its blog that the two government fee studies released this year "both give wind to ASIP's sails". It explained that "a better knowledge of fees could make it easier to reduce costs."
The blog further said that the "for a long time the Swiss pension fund association has advocated more transparency from banks on the matter of hidden costs of investment products that the c-alm study investigated. The second study supports its demand for 'not just more regulation', as this would actually raise costs and disadvantage savers."
"Solutions are instead needed to make administration easier" the association stated.
13 December 2011
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