SWITZERLAND – Pension fund association ASIP has urged the government to lower the guaranteed return on pension contributions, insisting that the move is critical to improving the financial health of its members.
Earlier this year, the Swiss government decided to leave the rate in question at 2.5%.
“An adjustment to the rate is not appropriate right now, since although financial markets have performed well, the consequences of bearish markets are still being felt,” the government said.
Buoyed by positive equity markets, Swiss pension funds achieved a 6.2% return in the first half of 2005 – their best return since 2003.
Even so, ASIP said the government should reduce the guaranteed return to 2% both because of chronic underfunding among its members and because of what was being earned on bond markets currently.
According to the association, underfunding is a problem at 10% of private sector schemes and 38% of public sector schemes. Swiss law permits underfunding at the public schemes owing to a government guarantee.
Hanspeter Konrad, ASIP’s managing director, told IPE: “The rate should be lowered to ease the pressure on the funds and give them time to re-build their reserves.”
According to ASIP, the fact that its members were earning around 2% on bond markets currently is another important reason why the rate should be reduced.
Indeed, low yields on bond markets is why German pension funds tied to insurers will likely reduce their guaranteed return to 2.25% in 2007 from 2.75% now.
However, ASIP’s call was sharply criticised by the SGB, the Swiss Trade Union Federation. Colette Nova, secretary of SGB, said on Swiss television that the pension funds’ strong performance in the first half in no way justified a cut in the guaranteed return.
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