The Swiss canton of Aargau is consulting on a series of measures to limit the consequences of a conversion rate reduction used to calculate pension payouts of the Aargauische Pensionskasse (APK), the pension fund for cantonal employees, and on a new concept in the case of underfunding.
The consultation lasts until 3 June.
APK has decided to cut the conversion rate from 5.3% to 5.0% from the beginning of this year, a level slightly below average, compared with other fully funded cantonal pension funds, the department of finance for the Aargau canton said in a report about the consultation.
The reduction of the conversion rate means that the level of pension benefits for pension fund members falls further, at 55% of the insured salary from 2024, below the 60% threshold considered by the Federal Social Insurance Office (FSIO), and by a generally accepted practice, the target level for pension benefits.
The canton’s executive body plans to increase contributions and reduce the sum used to calculate the wage insured in the pension fund (Koordinationsabzug) to cushion the reduction of the conversion rate and reach the benefit target of 60% of the insured wage.
For the canton the increase in contributions amounts to additional expenses of CHF6.9m (€6.7m) per year, and of CHF8.2m per year for adjusting the sum to calculate wages insured in the second pillar, the department of finance said.
Therefore employees will increasingly have to make their own provisions for old age in the future to maintain the level of pension benefits to some extent.
The possibility, for example, of a standardised framework for voluntary savings, with the employer’s contributions higher than the employee’s contributions, would also be an option to maintain a certain level of old-age provisions, the finance department added in the report.
Aargau canton is also proposing a one-off contribution for active members of the pension fund aged over 50 years old and to include the main aspects of APK’s restructuring process in case on underfunding in the pension fund decree.
According to the new restructuring concept, in case of underfunding of up to 95% contributions of up to 4%, and in the case of underfunding below 95%, contributions of up to 10% can be taken on members’ wages.
APK recorded a funding ratio of 104.2% at the end of 2020 and assets under management of CHF12bn.
The cantonal government is also proposing to review detailed regulations in the field of risk (cantonal pension plan) and the election of employer representatives on to APK’s board.
The canton’s executive body is convinced that the measures proposed will create a solid and modern framework for APK, including protecting occupational pensions in the future, despite difficulties that the second pillar in general and the cantonal Pensionskassen in particular are facing, it said.
The latest digital edition of IPE’s magazine in now available
No comments yet