Pension Funds

Initially, only a select elite had access to pension funds.Over the course of the 20th century, they were gradually expanded and are now considered the ‘second pillar’ of Swiss old age provision. Yet even today, not all workers are insured by a pension fund.

The first pension funds were established in the second half of the 19th century. They initially insured police officers, teachers and civil servants, thus reinforcing the organization of public service. Between 1888 and 1914, most administrations of municipalities, major cities and several cantons set up pension funds for their staff. The largest pension fund at the time insured the workers and employees of the Swiss Federal Railways (SBB). However, federal employees had to wait until the end of the First World War before they could benefit from old age provision. Apart from a number of pioneer companies, particularly transport companies (following the example set by the Swiss Federal Railways), banks and insurance firms (which wanted to ensure staff loyalty) as well as large companies in the machinery industry, there were only a few pension funds in the private sector prior to 1914.

The development of old age provision accelerated during the First World War. In connection with the tax on war profits, the Confederation granted companies tax exemptions on contributions to their own ‘welfare schemes’. Consequently, private companies established hundreds of pension funds. In addition to tax incentives, employers also set up pension funds in order to promote staff loyalty and avoid social tensions to escalate as seen in the general strike of 1918. The funds’ reserves were also used to finance companies' own operations. Since the 1920s, occupational provision also represented a market for life insurance firms, which managed pension funds for large companies in the form of collective group insurance schemes.

There were numerous types of pension funds in activity throughout the 20th century and until the introduction of the Federal Act on Occupational Provision (BVG) in 1985. The autonomous funds insured the employees of a single employer (a private company, canton or municipality), while life insurers covered workers from multiple employers (particularly in the private sector). Furthermore, there were also occupation-related funds (for doctors, manual workers, etc.) as well as trade union-related funds and funds for employers in a certain economic sector. Technically, only few of these provision institutions were insurance institutions, i.e. schemes collecting contributions and disbursing benefits according to clear regulations and actuarial principles. Alongside this rather limited group of providers, there were a variety of ‘welfare funds’ and other welfare schemes whose funding was assured exclusively by employers. 

This vast array of options explains the impressive number of new pension funds in the 20th century: 100 funds in 1903, more than 4,000 funds in 1941, and over 17,000 in 1978. Once the BVG came into force, only the institutions based on an insurance model remained, hence the number of funds dropped from 15,000 to 2,191 between 1987 and 2011. This abundant diversity of funds hides the actual core of provision active on the collective insurance market, which has encompassed around 200 autonomous funds by large companies, around 20 large public funds (at a federal and cantonal level, as well as among large municipalities), and a half dozen life insurance companies since the 1920s. (Numbers)

Since the interwar period, The Swiss Association for Private Sector Staff Welfare has represented the most important private-sector funds as well as the major life insurance firms. This lobby defended the interests of private provision during the first debates on the introduction of a federal old age insurance (AHV), supported the retention of tax expenditure and advocated a minimal regulation of provision schemes. The private provision lobby was highly influential in all pension debates long before the emergence of the three-pillar model in the 1960s. Today, The Swiss Pension Fund Association (Asip), founded in 1997, is a direct successor to this first lobby.

The pension funds took on many different roles throughout the 20th century. They were a key component of personnel management and promoted the stability and loyalty of staff. In public service, the early introduction of pension funds across the board led to greater loyalty among civil servants and served as a barrier to bribery attempts. Besides the above-mentioned role in taxation, the funds’ reserves also contributed to the self-financing of companies. In contrast to the pay-as-you-go AHV, pension funds were based on the capital accumulation model: their financing was ensured by the formation of reserves that were then invested on the capital market to generate interest income. The assets thus accumulated rapidly reached considerable sums. In 1941, they already accounted for a third of gross domestic product, and the assets of schemes belonging to the second pillar quickly climbed after the introduction of the BVG in 1985: in 2012 their assets amounted to around 750 billion francs, or 130 percent of gross domestic product. (Numbers) The pension funds are thus among the largest institutional investors in the country. Managing their assets is also a source of income for banks and asset management firms. 

For around a century, pension funds were subject to minimal state regulation and their mechanisms were rarely the focus of interest. There was no supervisory act governing the funds before the BVG entered into force, and the BVG itself was restricted to a range of framework conditions for ensuring the system ran smoothly. However, the situation changed at the beginning of the 21st century. Occupational provision is now the subject of great interest and provides for passionate political debates, as demonstrated by the referendum on reducing the BVG conversion rate in 2010. 

> Old age provision in numbers

Literatur / Bibliographie / Bibliografia / References: Leimgruber Matthieu (2008), Solidarity without the state? Business and the shaping of the Swiss welfare state, 1890–2000, Cambridge; Pittet Meinrad, Chuard Claude (2013), La prévoyance professionnelle depuis ses origines, Genève; Lengwiler Martin (2003), Das Drei-Säulen-Konzept und seine Grenzen: private und berufliche Altersvorsorge in der Schweiz im 20. Jahrhundert, Zeitschrift für Unternehmensgeschichte, 48, 29–47.