LPP surpluses in Switzerland: where did the money go between 1985 and 2006?
1972: a report was drawn up by the private insurance companies, which remained ignored for fifty years.
This document served as the basis for the three-pillar doctrine. The Swiss legislature adopted it verbatim.
Pietro Boschetti, a journalist, tells this story in a book published in 2023. The Case of the Century, the 2nd Pillar and the Insurers (Alphil Publishing).
This story raises a question that remains relevant today: Who decides how the returns of a pension fund are allocated? And according to what interests?
The Surplus Mechanism, 1985-2000
The LPP came into force in 1985. The law imposed a single obligation on the funds: to credit the insured's assets at a minimum rate, then set at 4%.
However, there are no limits on yield beyond this threshold.
Between 1985 and 2000, the markets generated high returns, averaging close to 10% per year, with peaks of 18-20% in some years. The gap with the guaranteed minimum rate became considerable.
Two types of cash registers then handle this difference differently:
Autonomous funds, backed by a company. They generally redistribute the surplus to the insured.
The funds are managed by life insurers. They do not separate their own assets from those of the fund.
The result: it is impossible to distinguish what belongs to the insured and what remains with the insurer.
The 20 billion, and the silence of the supervisory authority
Parliament discovered the extent of the problem between 2000 and 2002, during the work of the first LPP revision.
The finding: approximately 20 billion francs in surpluses. Used freely by insurers, rather than contributing to the reserves owed to policyholders.
The supervisory authority at the time was the Federal Office for Private Insurance. It did not demand greater transparency. Its argument: disclosure would harm the competitiveness of Swiss insurers.
Ruth Dreifuss held the portfolio for old-age pensions at the Federal Council for ten years. She would later publicly criticize this decision. According to her, entrusting its management to private companies was a design flaw, not a mere technical detail.
2004-2006: a reform in form, not substance
The 2004-2006 LPP revision introduced greater transparency and joint management of pension funds. It also lowered the conversion rate.
These adjustments correct the symptoms. They do not address the root of the problem: mandatory social insurance managed by private actors pursuing their own commercial interests.
A question that remains open
The debate in the 2000s focused on excess returns, in a context of high interest rates. The context has changed since then.
The fundamental question remains: Who arbitrates between the interests of the insured and those of the service provider managing their assets?
A common thread runs through this entire story. No one was held accountable for the entire case.
The banks managed their part of the mandate. The supervisory authority protected the sector's competitiveness. The customer saw neither.
For a manager or a self-employed person, the question is not theoretical. It determines the real conditions for managing their pension capital today.
What this changes in practical terms
SwissPensionAdvisors does not receive any commissions. It does not distribute any proprietary pension products.
Five areas of expertise are brought together within the same organization. No subcontracting:
Occupational pension plans. Taxation. Law and structuring. Financial planning. Wealth management.
A single team reviews the entire case. Not five different people, each responsible for their own area of expertise.
Each insurance scheme remains managed independently of the institution that offers or manages it.
This choice is not a commercial stance. It is a response to a problem that has been documented for over twenty years: that of a management system where the service provider and the decision-maker are one and the same.
Frequently Asked Questions
How were pension fund surpluses managed before 2006?
The LPP only imposed a minimum rate, set at 4%. Independent pension funds redistributed the surplus to policyholders. Funds linked to life insurers did not separate their assets from those of the insurer.
What is the 20 billion scandal in the Swiss pension system?
Parliament discovered this during the first revision of the LPP (Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans), between 2000 and 2002. Approximately 20 billion francs in surplus funds had been freely used by insurers, rather than being allocated to reserves owed to policyholders.
Did the 2004-2006 LPP revision solve the problem?
It introduced greater transparency and joint management. It also lowered the conversion rate. Fundamentally, nothing changes: mandatory social insurance, managed by private actors.
Sources
Pietro Boschetti, The Case of the Century, the 2nd Pillar and the Insurers (Alphil, 2023). Parliamentary proceedings, first revision of the LPP, 2000-2002.
