Swiss LPP portfolio: composition, returns and OPP2 limits

Updated: March 2026

The occupational pension scheme (LPP — Loi sur la Prévoyance Professionnelle, also known as BVG in German) forms the second of the three pillars of the Swiss retirement system. In this article, we examine in detail how a typical LPP portfolio works in Switzerland, its composition, and its historical performance. If you are unfamiliar with the broader context of Switzerland's pension system and its structural challenges, we recommend reading our overview article first: Switzerland's LPP pension: the 2nd pillar in slow decline.

The fundamentals of an LPP portfolio in Switzerland

The LPP is the second pillar of the Swiss retirement system, complementing the AVS/AHV (1st pillar) and individual savings (3rd pillar). Pension funds manage members' LPP assets and invest them on financial markets to generate returns.

The primary goal of an LPP portfolio is to preserve members' capital while seeking positive long-term returns. To achieve this, pension funds diversify their investments across several asset classes, including equities, bonds, real estate and alternative investments.

Investment decisions by pension funds are governed by the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (LPP) and its implementing ordinance (OPP2). These legal texts define the principles of portfolio management, investment limits, and requirements around transparency and governance.

The performance of LPP portfolios has a direct impact on the level of future pensions. It is therefore critical for pension funds to adopt a prudent investment strategy suited to their members' profiles, while respecting the regulatory constraints.

Asset allocation: composition of an LPP portfolio

The four main asset classes

A typical LPP portfolio is made up of several asset classes, each with its own risk and return characteristics. The main asset classes are:

1. Bonds: debt instruments issued by governments, corporations or supranational organisations. They typically offer stable but relatively low returns.

2. Equities: ownership stakes in listed companies. They offer higher return potential but also greater volatility.

3. Real estate: direct or indirect investments in residential and commercial properties. This asset class provides regular rental income and a degree of inflation protection.

4. Alternative investments: non-traditional assets such as private equity, hedge funds or commodities. They aim to diversify the portfolio and generate returns uncorrelated with equity markets.

Factors determining asset allocation

The weighting of asset classes within an LPP portfolio depends on several factors, including:

• The demographic profile of members (average age, ratio of active workers to retirees)
• Pension commitments (funding ratio, technical interest rate)
• The fund's risk tolerance
• Long-term return expectations

Investment limits under OPP2

The Ordinance on Occupational Retirement (OPP2) sets investment limits for each asset class in order to ensure adequate diversification and contain risk. The main limits are as follows:

• Equities: maximum 50%
• Real estate: maximum 30% (of which up to 1/3 abroad)
• Alternative investments (including commodities): maximum 15%
• Foreign currency holdings without exchange rate hedging: maximum 30%
• Claims: maximum 10% per debtor, except for the Swiss Confederation

These limits apply to the total assets of the pension fund, not to each individual portfolio. Pension funds may therefore adopt different investment strategies depending on their members' profile — a more conservative approach for retirees and a more dynamic one for active workers.

Historical performance of Swiss pension funds

The performance of LPP portfolios depends heavily on asset allocation and market conditions.

According to the Swisscanto pension fund study, Swiss pension funds have delivered an annualised return of around 4% over the past 20 years. The UBS Pension Fund Index (which absorbed the former Credit Suisse index in 2023) confirms this figure over a longer horizon, with an annualised return of approximately 3.3% since measurements began in 2006. The LPP minimum interest rate, set by the Federal Council, is even lower — currently 1.25% for both 2025 and 2026.

Given the investment opportunities available under OPP2, these results are surprisingly modest. An average annual return of 3% to 4% is simply not enough to guarantee adequate retirement income. The minimum rate, set at an extremely low level, raises further questions.

I had already raised these concerns back in 2019, arguing that returns should logically be around 6.7% per year — roughly double the actual performance of pension funds at the time. That analysis covered 2010–2019, a particularly favourable decade for equities that may have partially explained the gap. We now update this analysis using more recent data over a longer time horizon.

Backtests of LPP portfolios

For the portfolio backtests, I use instruments authorised under OPP2 within the applicable limits:

• For the equity component (max. 50%), I use the ETFs EWL (MSCI Switzerland) and SPY (S&P 500).
• For real estate (max. 30%), I use a selection of listed Swiss real estate funds. The SRFCHA ETF would also have worked for the full allocation, but its track record is relatively short (since 2011).
• For bonds (maximum 10% per issuer, except the Swiss Confederation), I use the ETFs TLT (US government bonds, 20+ years) and CSBGC0 (Swiss government bonds, 7–15 years).
• For gold (maximum 15%), I use the ETF GLD.

Using these instruments, I test four portfolios at the 50% equity ceiling set by OPP2. It should be noted that this limit technically applies to the total assets of the pension fund as a whole — not to each individual sub-portfolio — so going beyond it would have been permissible in practice.

I also test a portfolio representative of actual Swiss pension funds, with a lower equity weighting (around 30%), to provide a complete picture.

The backtest covers 2004 to 2024, with performance expressed in Swiss francs. This is twice the length of my original 2019 analysis and spans the subprime crisis, the Covid shock, and the subsequent interest rate surge.

The best-performing portfolios — with 50% equities split between the Swiss and US markets, 30% in Swiss real estate, 10% in government bonds (US or Swiss) and 10% in gold — deliver an average annual return of over 7%.

Despite the crises mentioned above, this result still exceeds what I obtained in my 2019 analysis (6.7%). It is far above the 3% to 4% annualised returns delivered by pension funds over the long term — a finding confirmed by the UBS index at roughly 3.3% annualised since 2006. This represents nearly six times the LPP minimum rate.

But the gap becomes even more striking when looking at recent years. In 2024, markets were generous to pension funds: their average net return reached 7.6% according to Swisscanto, with the top 10% of funds achieving 10.8%. An excellent year, without question. Yet the best portfolios in this backtest returned close to 17% over the same period. In 2025, the story repeated itself: pension funds averaged around 5.8%, while the optimised portfolios exceeded 13%. In other words, even during the best market years — precisely those when pension funds shine and issue glowing press releases — the gap with what is genuinely achievable remains structurally enormous. This is not a cyclical underperformance. It is a systemic one, year after year, regardless of market conditions.

One explanation often put forward by pension funds is population ageing. As the director of the SBB pension fund once put it: "We are the wrong generation. It is genuinely bad luck. We have to be cautious — we cannot hold 70% in equities, because in a crash we would have a problem paying pensions. Having so many retirees forces us into a very defensive investment strategy. Many funds are in the same situation. It comes down to demographics, and the number of retirees is not going to shrink."

Nobody is asking for 70% in equities. And in any case, OPP2 would not allow it. In practice, Swiss pension funds hold around 30% in equities on average, with one-third in Swiss stocks and two-thirds in foreign securities. The last portfolio tested above is a representative example of this. Even with such a defensive allocation, the average annual return comes to 5.42% over 2004–2024 — two percentage points above the actual pension fund average, and four points above the LPP minimum rate.

Safe-haven investments do not generate enough return to fully cover pension payments. Pension funds therefore have no choice but to cross-subsidise current retirees by skimming returns from their investment portfolios — at the direct expense of future pensions for today's active workers.

Impact on retirement income

Percentage points have a well-known flaw: they tend to seem abstract, making differences appear smaller than they actually are. This effect is magnified dramatically when compounded over a very long period. That is the famous snowball effect.

To make this concrete, consider someone who starts contributing to their pension at age 25. Their employer and themselves together contribute CHF 10'000 per year to an LPP account. For simplicity, let us assume that amount remains constant until retirement at age 65.

Applying the different LPP portfolio returns above, and using the legal conversion rate of 6.8% (maintained following the rejection of the LPP 21 reform in September 2024), we get the following outcomes:

• Best LPP portfolio tested (7.07%/year): final capital = CHF 2'159'445 / annual pension: CHF 146'842
• Representative portfolio — what pension funds should realistically achieve (5.42%/year): final capital = CHF 1'385'397 / annual pension: CHF 94'207
• Actual pension fund results according to Swisscanto and the UBS index (3.5%/year): final capital = CHF 856'678 / annual pension: CHF 58'254
• LPP minimum rate (1.25%/year): final capital = CHF 515'669 / annual pension: CHF 35'065

Striking. The same annual contribution, the same OPP2 constraints — and yet the gap between first and last place is fourfold. The top retiree can live very comfortably, with AVS on top and a possible 3rd pillar as well.

At the other extreme sits the typical retiree who will struggle to maintain their pre-retirement standard of living, even after adding the 1st pillar. The one just above, not quite at the LPP minimum, fares somewhat better — but would be well advised to have invested through savings and/or a 3rd pillar if they want to preserve their lifestyle. Yet as the second row shows, with the same investment policy, that same retiree should be able to retire very comfortably — especially with the AVS on top.

The minimum rate set by the Confederation is far too low. Pension funds give themselves a clear conscience by reporting annual returns of 3% to 4%. Yet based on their own investment policies, they should be crediting around 5.5% on average — and could reach 7% by tilting more toward equities. Article 5 of OPP2 states: "The pension institution shall aim for a return corresponding to the income achievable on the money, capital and real estate markets." The system is clearly falling well short of that target.

Management fees can account for a few tenths of a percentage point, but not several full points. A reasonable expense ratio for an actively managed portfolio is around 0.5% to 0.75%; anything above 1.5% is generally considered high. For passive funds, the average expense ratio is around 0.12%. And yet pension funds frequently rely on passive management, precisely to keep costs down.

The social insurance problem

The LPP, like LAMal and the AVS, is a social insurance scheme. This concept carries two fundamental problems, built into its very name:

• Insurance: by insuring yourself, you delegate risk management to someone else. You pay not only for the coverage of the event itself, but also for significant additional costs — typically labelled "administrative". Whether you ever need to make a claim is irrelevant: these costs are charged regardless. In other words, you are billed simply for the act of having your money collected.
• Social: risks are pooled across many individuals, meaning that a majority effectively funds the needs of a minority. Spreading risk over a large number of people reduces individual responsibility through the phenomenon of social loafing. This is particularly pronounced when the insurance is compulsory: "I've paid in, so I'm entitled."

The result is a massive forced flow of money from the individual to the institution managing the social insurance (AVS, LPP, LAMal, unemployment insurance, etc.). Because of the enormous operating costs of these organisations, the absence of competition, the compulsory nature of contributions, members' social loafing, and the high salaries of executives and fund managers, the money that flows back to beneficiaries is meagre.

The system benefits a minority: the institution running the social insurance, the State, private insurers, a handful of other intermediaries, and certain members who game the system. The mechanism creates no wealth — it merely diverts it. Those who are supposed to be protected by the social insurance in question end up the losers: the money they receive in return is derisory.

Conversely, if individuals managed these risks themselves, they would benefit from a far better return on investment. By setting aside these amounts for the future, they would prevent others from dipping into their savings. They would benefit over the long term from the magic of compound interest. And whereas social loafing encourages the squandering of members' money, the self-insuring individual has every incentive to manage their nest egg responsibly.

Frequently asked questions

What is the average return of an LPP portfolio?

According to the Swisscanto study and the UBS Pension Fund Index (since 2006), Swiss pension funds have delivered an annualised average return of 3% to 4%. This is disappointing compared to the 7% potential achievable with an optimised allocation within OPP2 limits.

What are the investment limits under OPP2?

OPP2 imposes strict limits: a maximum of 50% in equities, 30% in real estate (of which up to 1/3 abroad), 15% in alternative investments including gold and commodities, and 30% in unhedged foreign currencies. These limits apply to the pension fund's total assets.

Why do Swiss pension funds underperform?

Several factors explain this underperformance: a defensive asset allocation (around 30% in equities on average, versus the 50% permitted), management fees, and the social insurance structure that diffuses responsibility and encourages inefficiency. The backtests show that passive management using ETFs could double current returns.

What is the impact on my future pension?

The impact is considerable. With CHF 10'000 in annual contributions over 40 years, a 7% return generates an annual pension of CHF 146'842, compared to only CHF 58'254 at the current average return of 3.5%. The difference is more than double the pension income at retirement.

Will the LPP conversion rate of 6.8% be cut?

For now, no. The LPP 21 reform, which proposed lowering the legal rate from 6.8% to 6.0%, was rejected in a popular vote on 22 September 2024 by 67.1% of voters. The legal minimum conversion rate therefore remains at 6.8% for the mandatory portion. However, conversion rates in the supra-mandatory portion continue to fall, averaging around 5.3% in 2025 compared to 6.74% in 2010.

Conclusion

The analysis of occupational pension portfolios reveals a troubling reality. The many investment opportunities available under the LPP system — notably through OPP2 — are simply not being put to work for the benefit of pension fund members.

The backtest results make clear that significantly higher returns are achievable without necessarily taking on more risk. This structural underperformance has a direct and lasting impact on the quality of life of retirees. Pension funds should be capable of guaranteeing a decent — even comfortable — standard of living for all their beneficiaries.

This raises serious questions about fund governance, the transparency of operations conducted within these institutions, the criteria used to select investments, the competence of fund managers, and their commitment to the members who entrust them with their savings.

Who really benefits from the assets invested in pension funds? Many intermediaries, certainly. But not really the members themselves, whose savings should be working far harder for them. The glaring gap between available returns and realised returns only deepens the doubts about the integrity and effectiveness of the system.

It is hardly surprising, then, that the vote on a 13th AVS pension passed easily. Unfortunately, as so often, it will be financed by the same people who are already being fleeced by the LPP.

Sources and data

• OPP2 – Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans: fedlex.admin.ch
• Swisscanto – Swiss Pension Fund Study (2025 edition): swisscanto.com
• UBS – Swiss Pension Fund Index (monthly data since 2006): ubs.com
• Swiss Federal Council – LPP minimum rate decision for 2026 (November 2025): bsv.admin.ch
• UBS – Pension fund conversion rate: ubs.com
• Swiss Confederation – LPP 21 reform (September 2024 referendum result): bsv.admin.ch