The World Is Discovering Funded Pensions. What Does That Mean for Institutionals?

Restart or repair: the Swiss starting point

Switzerland has combined pay-as-you-go and funding for decades. The AHV (old-age and survivors' insurance) is pay-as-you-go, occupational pensions are funded. According to the Federal Statistical Office, Switzerland's 1,292 pension funds held total assets of around CHF 1,221 billion at the end of 2024. Yet recent reforms have mostly concerned the pay-as-you-go side. Three reforms of the occupational pension law (BVG) have failed – in 2010, 2017 and 2024, the last with 67% voting no. The 13th AHV pension costs more than CHF 4 billion a year at the outset and is only about half funded; voters will decide on 29 November 2026 on a VAT increase of 0.4 percentage points expected to raise around CHF 1.4 billion a year.

Against this backdrop, five reform strands are now on the table. They differ not only in substance but in status: a private discussion paper is not a bill, and a request for a report is not a reform.

UBS: a new architecture

The UBS discussion paper – presented by chief economist Daniel Kalt with Elisabeth Beusch, James Mazeau and Veronica Weisser – is the only comprehensive blueprint. From 2035, the pay-as-you-go AHV would gradually be replaced by a funded first pillar on a defined-benefit basis: contributions of 20% on wages up to CHF 50,000, split equally between employers and employees, with a return guaranteed by the federal government. Above that, up to CHF 150,000, a second pillar would become pure defined contribution, with age-independent contribution rates, free choice of provider and individual investment strategies. Tax incentives in pillar 3a would be redirected towards low earners, and mandatory long-term care insurance from age 45 would be added. The retirement age would be partly linked to life expectancy, reaching around 68 in the long run for today's 18-year-olds. The goal is full income replacement for low earners with complete careers.

The catch is the transition. Today's workers would have to fund current AHV pensions while building their own capital. According to the study as reported by AWP and cash.ch, existing AHV entitlements would require additional federal contributions averaging CHF 43.7 billion a year between 2035 and 2100. Tax revenues would have to rise by around 18% during the transition and by 3% in the long term, and an exemption from the federal debt brake would be unavoidable. Those aged 30 to 55 would be hit hardest, with pensions up to 6% lower. UBS justifies the effort with the AHV's implicit debt, which is not subject to any debt brake today. Kalt describes the paper as a design «on a greenfield site»; UBS CEO Sergio Ermotti presents it as a contribution to the debate, not a list of political demands.

Avenir Suisse: protect the second pillar from politics

Writing for Avenir Suisse (26 August 2026, first published in Handelszeitung), Diego Taboada argues the opposite: pension funds have long since adjusted on their own. Nine in ten have made the coordination deduction flexible or abolished it, and funds providing mostly supra-mandatory benefits apply an average conversion rate of about 5.3% rather than the statutory 6.8%. The cross-subsidy from active members to pensioners has reversed, from CHF 8 billion in favour of pensioners in 2015 to CHF 2.9 billion in favour of active members in 2025. Taboada's warning: improving only the contribution side – a lower coordination deduction or earlier saving – enlarges the capital on which the excessive minimum conversion rate is guaranteed. Either a balanced overall reform, or restraint.

Insurance Association: automatic stabilisers, not system change

In its position of 9 September 2026, the Swiss Insurance Association (SIA) calls for an AHV intervention mechanism that, once the fund falls below a threshold, primarily raises the reference age and secondarily VAT. In occupational pensions, a lower minimum conversion rate is «an unavoidable element» of any financing analysis; reference age, conversion rate and minimum interest rate should follow actual conditions. The SIA opposes raising the earliest drawing age in pillars 2 and 3a to 63.

Parliament and Federal Council: step-by-step modernisation

In its summer session, the Council of States unanimously adopted committee postulate 26.3521. The Federal Council is to report on fewer and lower age-related contribution rates, earlier saving, better coverage of part-time and multiple-job workers and more voluntary saving, including offsetting finance, as Schweizer Personalvorsorge reported. The conversion rate is explicitly excluded – precisely the constellation Avenir Suisse warns against.

AHV 2030, under consultation from 20 May to 11 September 2026, aims to stabilise the AHV from 2030 to 2040. The reference age stays at 65. Instead, the bill provides incentives to keep working, a broader contribution base (including sickness and accident daily allowances and excessive dividends, worth around CHF 600 million a year by 2040) and, depending on the decision on the 13th pension, additional VAT. Notably, the Federal Council also proposes an intervention mechanism: if the AHV fund is projected to fall below 90% of one year's expenditure within three years, it must submit measures to Parliament within a year. The difference to the SIA is therefore not the mechanism itself, but whether it automatically targets the retirement age. The dispatch to Parliament is due by the end of 2026.

Sources: UBS, Avenir Suisse, SIA, Schweizer Personalvorsorge, Federal Social Insurance Office.

There is so far no evidence that other actors are explicitly responding to the UBS study. Avenir Suisse refers to the postulate, not to UBS. UBS has widened the debate rather than started it.

What is happening abroad

Abroad, too, funding is the reform theme of the moment. The instruments, however, range from children's accounts to an expanded public scheme and state-guided consolidation of private funds.

United States: seed capital from birth

The «Trump Accounts» created by the tax law of 4 July 2025 opened on 4 July 2026. For US children born from 2025 to 2028, the Treasury makes a one-off deposit of USD 1,000; families can add up to USD 5,000 a year. Money may only be invested in low-cost index funds tracking US equities, withdrawals are barred before age 18, and afterwards the accounts are essentially treated as traditional IRAs. Michael and Susan Dell have pledged USD 6.25 billion to seed around 25 million older children with USD 250 each. This is wealth and capital market policy, not reform of pay-as-you-go Social Security. It also shows the distributional effect against which such programmes are judged: those who can add money benefit disproportionately.

Canada: more public funding

Between 2019 and 2025, Canada enhanced the Canada Pension Plan. The target replacement rate rises from 25% to one third of covered earnings, and the upper earnings limit was raised by about 14% in 2024 and 2025. The full effect only materialises after some 40 years of contributions. Canada thus shows that more funding need not mean less state: the capital sits with a public body, CPP Investments, which invests globally. That is exactly where the current debate ignites. Business leaders and politicians are pressing the large pension funds to invest more at home; excluding fixed income, only about 12 cents of every dollar they manage is Canadian, according to Policy Options. The Fraser Institute argues that a domestic quota would act as a hidden tax on members' returns.

Germany: no guarantee, capital from age six

Germany is overhauling subsidised private provision. The Altersvorsorgedepot (retirement investment account), passed by the Bundestag on 27 March and the Bundesrat on 8 May 2026, replaces the Riester pension from 1 January 2027. For the first time, subsidised products without a contribution guarantee are allowed, alongside a standard account with a 1% cost cap. The basic subsidy is 50% on own contributions up to EUR 360 and 25% up to EUR 1,800, capped at EUR 540 a year. On 16 October 2026, the Bundestag also passed the Frühstartrente (early-start pension): EUR 10 a month from the state for children aged 6 to 18, initially for those born in 2020 and 2021, invested in capital markets and generally available only at retirement age. Bundesrat approval is still pending. Unlike in the US, the money is clearly tied to retirement.

Netherlands: farewell to the benefit promise

The Netherlands is not building funded pensions – it already has one of the largest systems in the world. What is changing is the contract: under the Future Pensions Act (Wtp), pension funds must move from defined-benefit promises to contribution-based arrangements with personal capital allocation, but continued collective risk sharing, by 1 January 2028. By the end of June 2026, according to De Nederlandsche Bank, 34 funds with EUR 589 billion out of a total of EUR 1,720 billion had transitioned. The largest fund, ABP with EUR 518 billion, switches on 1 January 2027. The delicate part is dividing collective assets into individual entitlements – a transition risk ultimately borne by members.

United Kingdom: pensions as growth policy

The Pension Schemes Act 2026 received Royal Assent on 29 April 2026. Multi-employer defined contribution schemes must run a default fund of at least GBP 25 billion by 2030, with a transition pathway to 2035. The contested part is the government's reserve power: from 2028 it may require up to 10% of default funds to be invested in private markets and infrastructure, of which up to 5% in the UK – at most once and only until 2032, as Womble Bond Dickinson summarises. These limits were imposed by the House of Lords after sustained opposition. The power backs up the voluntary Mansion House Accord of 2025, in which providers committed to similar allocations.

Australia and Japan

Australia relies on compulsory funding and is tightening it: the employer superannuation guarantee has been 12% since July 2025, and since July 2026 it must be paid with every pay cycle («Payday Super»). Japan, by contrast, promotes private wealth building: the NISA scheme expanded in 2024 raised tax-free investment limits and made the tax exemption permanent. It is not a pure retirement instrument but part of a broader capital market policy.

Sources: US Treasury/NBC, Government of Canada, Bundesrat/DRV, DNB, UK Parliament, ATO, Japan FSA.

What the reforms have in common

Four common patterns emerge from the comparison.

• Funding is broadened. No country simply replaces its state pension with private accounts. Canada strengthens the public pillar, Germany supplements it, Australia raises the compulsory contribution. The aim is resilience to demographics, not a smaller state.
• Guarantees are being repriced. Germany allows subsidised products without guarantees, the Netherlands is leaving defined benefit behind, and UBS wants to abolish it in the second pillar. Risk does not disappear; it moves to members – more visible, but not smaller.
• The state organises market access. Seed money, subsidies, default products, cost caps and fallback solutions: funding does not emerge from the state's retreat, but from state design.
• Pension capital becomes an economic policy resource. London and Ottawa want more of it invested at home. Germany took the opposite route for the public fallback fund of the Frühstartrente, prescribing broadly diversified global equities to rule out other political objectives. The conflict between fiduciary duty and industrial policy is built in everywhere.

State or private? The wrong question

The contrast «state pension versus private provision» no longer gets us far. What matters is how the individual functions are allocated: who provides access – through compulsion, seed funding or auto-enrolment? Who manages the capital – a public body as in Canada, collective funds as in the Netherlands and Switzerland, or private providers as in Germany and the US? Who bears investment and longevity risk? And who decides what the money is invested in? In this grid, the UBS study is a hybrid: it calls for more funding and more individual choice, but relies on a state guarantee in the first pillar and finances the transition through taxes and debt.

Is Switzerland a model – or is it adapting?

As an architecture, Switzerland is a forerunner. The three-pillar principle has been in the Federal Constitution since 1972, and mandatory occupational funding has applied since 1985. Other countries are moving towards a combination of pay-as-you-go and funding that Switzerland has known for decades. There is no evidence, however, that the current reforms in Washington, Berlin or London were explicitly modelled on Switzerland.

On three counts, Switzerland is not ahead. First, access: pillar 3a requires AHV-liable earned income, and its tax deduction benefits higher earners most. Germany pays direct subsidies and supports children from age six, the US from birth. Second, parameters: the statutory conversion rate of 6.8% has been too high for years and is politically blocked; pension funds correct it via the supra-mandatory component. Third, the first pillar: the AHV remains purely pay-as-you-go, while Canada shows that a public pillar can build capital.

Switzerland therefore does not need to reinvent its system. But its long experience does not translate into a lasting lead. The questions raised abroad – access without earned income, support for low earners, simple default solutions, protection against investment for non-pension purposes – arise here too.

What this means for institutional investors

For pension fund boards and investment officers, the debate is no distant question of system design.

• Individualisation is coming either way. Free choice of provider and individual strategies, as proposed by UBS, would turn the second pillar into a competitive market. Even without system change, pressure is building towards defined contribution, transparent costs and choice.
• Risk sharing becomes more visible. The Dutch experience shows how demanding it is to divide collective assets fairly between generations. Swiss funds with large pensioner populations know this question from the cross-subsidy debate.
• Investment freedom cannot be taken for granted. British quotas and Canadian calls for domestic investment show how quickly pension assets are claimed for national economic goals. In Switzerland, the BVV 2 ordinance mainly limits risks; it does not oblige funds to make particular investments. That distinction is worth defending.
• Demand for long-term capital is growing. More funding worldwide means more demand for infrastructure, private markets and equities – and more competition for the same assets.

Conclusion: the dispute begins after the consensus

The world is discovering funded pensions, and Switzerland discovered them early. The real dispute, however, only begins afterwards: who gets access, who bears the risk, who pays for the transition, and whom should the capital serve? UBS answers these questions radically, the SIA and Avenir Suisse cautiously, the Federal Council with revenue rather than structure. On 29 November, voters will first decide on the next round of VAT for the pay-as-you-go system – that will not end the fundamental debate about funding.

Sources: UBS, media release on its discussion paper for a more sustainable Swiss pension system (24 June 2026); AWP/cash.ch, «UBS schlägt Systemwechsel in der Schweizer Altersvorsorge vor» (24 June 2026); LAW.CH (July 2026); Avenir Suisse, Diego Taboada, «Rettet die zweite Säule – vor der Politik» (26 August 2026); Swiss Insurance Association, position on retirement provision (9 September 2026); Schweizer Personalvorsorge, «Der Ständerat strebt nur eine kleine Reform an» (3 June 2026); Federal Social Insurance Office, AHV 2030; Swiss Federal Council, additional AHV financing, popular vote of 29 November 2026; SRF (17 June 2026); Federal Statistical Office, pension fund statistics 2024; NBC News on Trump Accounts (2026); Government of Canada, CPP enhancement; money.ca and Fraser Institute on domestic investment by Canadian pension funds (2026); German Bundesrat and FondsSuperMarkt on the Altersvorsorgedepot (8 May 2026); Deutsche Rentenversicherung, Frühstartrente (19 October 2026); German Bundestag, Finance Committee (14 October 2026); De Nederlandsche Bank, pension transition Q2 2026; IPE on ABP (2026); Womble Bond Dickinson and LCP on the Pension Schemes Act 2026; Australian Taxation Office, Payday Super; Japan Financial Services Agency, NISA.