SWITZERLAND - New federal regulation on coverage ratios could jack up the price of a proposed merger for Swiss public pension funds Caisse de pension des fonctionnaires (CIA) and Caisse de pension des hôpitaux (CEH).

The merger, announced as early as 2006 and expected to go through in 2013, is part of the Canton of Geneva's plans to cut the two pension funds' deficits.

In a recent statement, the local government said life expectancy growth - as well as the number of Swiss workers contributing to the schemes relative to the number of pensioners - meant urgent changes were needed.

But new federal regulation passed in December 2010, stipulating that public pension funds must achieve a coverage ratio of 80% by 2052, could put pressure on the planned merger.

Between 2007 and late 2010, the coverage ratio at the CEH fell from 87% to 71%, while the coverage ratio at the CIA plummeted from 72% to 56%.

Under the current merger proposal, the local government is planning to pump CHF94m (€83m) every year into a new pension fund - to be called Caisse de Prévoyance du Canton de Genève - as part of a recapitalisation plan. 

But David Hiler, state councillor in charge of the department of finances, conceded that the current financial crisis could hurt local pension funds' coverage ratios. 

And Roland Godel, head of communications for the department, said: "We still don't know what kind of effects the current crisis will have on the two pension schemes, but further capital might be needed."  

The CPCG is expected to start its operations in January 2013 with 60,000 affiliated workers - two-thirds with the CIA and the other one-third with the CEH - and as much as CHF10bn in assets under management.

The length of contributions and the amount of contributions made to the new pension fund are to increase, while the legal retirement age will be fixed at 63 years.

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