SWITZERLAND - The pension fund for state-owned Swiss railways operator SBB plunged into the red in 2006, reporting a loss of CHF60m (€36.7m) due to underperformance of its assets.

SBB said that despite last year's positive equity markets, its pension scheme (Pensionskasse) had a return of 5.6% for 2006, or 0.4 percentage points under the threshold to break even.

The scheme's CHF60m loss for 2006 sharply contrasts with a CHF460m surplus achieved in 2005 - another year marked by positive equity markets.

The loss has made worse the scheme's eight-year run of financial woes. In 1999 the Swiss government failed to fully capitalise it following a privatisation.

Since then, the CHF12bn SBB Pensionskasse has remained underfunded. Its funding ratio fell to 86.8% in 2006 from 86.5% in 2005.

To bolster the scheme, SBB said that last year it provided a CHF1.5bn capital injection. "As a result, we have mostly bailed out the part of the scheme serving active employees and even provided it with reserves," said SBB spokesman Roland Binz.

Binz noted, however, that a deficit equalling CHF1bn remained in the part of the scheme that serves retirees. The deficit is both a result of generous pension benefits being paid to former SBB employees and the fact that the scheme was not fully capitalised in 1999.

Said Binz: "We expect support from the government in capitalising the part of the scheme serving retirees. It is neither proper nor is it possible to ask the scheme's active employees to take up that burden."

"We don't know yet in what form this support will take, but it's crucial that the government lives up to its obligations (to the retirees) and that the support come as quickly as possible," he added.

Contacted by IPE, a spokesman for the Swiss agency in Bern which oversees the second pillar was not immediately available.

In terms of SBB Pensionskasse's asset allocation, the scheme had 26.2% of its assets in equities last year, including nearly 17% which were foreign. Allocations to fixed income totalled 53.8%, including 42.7% which were denominated in Swiss francs.

SBB Pensionskasse had another 8.6% invested in real estate funds last year and 3.8% in alternatives, including commodities, hedge funds and private equity. Mortgage loans made up 6.2% of its assets while liquidity was just above 1%.