SWITZERLAND – Publica, one of Switzerland’s biggest pension funds, says it achieved surplus earnings of CHF1.76bn in 2005 but will use the money to build up reserves instead of paying it out to its insured members.

The surplus represents just over half of the 9.9% return the scheme made last year.

“Although the return for 2005 was very good, it did not suffice to enable us to reach our target levels for reserves. In other words, we do not have any surplus money to distribute to the insured,” Publica, which provides a pension to government employees, said.

It said the government sanctioned the move yesterday.

The scheme added that once its coverage ratio – or the extent to which it can finance its liabilities – reached 115%, it would be in a position to distribute any surplus earnings to its members.

Even so, the pension accounts of Publica’s 40,000 contributing members will be credited with 4.5% in interest – the other half of its return for 2005.

Commenting on its performance for 2005, Publica acknowledged that it was below an average of 13% for several of its peers in Switzerland.

“Yet it must be pointed out that the (13%) return was achieved thanks to greater exposure to equities, which compared with Publica was around 10 percentage points higher,” the scheme noted in a commentary.

At the end of 2005, Publica had 25.1% invested in equities, 16.6% of which were foreign and the rest Swiss. Allocations to fixed income totalled 44%, 38% of which was denominated in Swiss currency and the rest in foreign currency.

Publica also had another 9.93% invested in real estate assets and near 21% in cash and money-market instruments.

From 2008, Publica plans to switch to defined contribution from defined benefit. The scheme also plans to remove CHF17bn from its total assets and put them in a separate fund to finance pensions for current public sector employees.

The pensions, which will be guaranteed by the government, include those for employees of former state-owned companies like telecoms operator Swisscom.