The Swiss federal commission for occupational pensions, BVG-Kommission, is warning that the minimum interest rate paid on occupational pension savings might not be in line in the future with inflation as the level of prices is running high.

The minimum interest rate should be in line with the development of wages and prices over the long term, the commission said, adding that the target was exceeded in the past but the adjustment process is slowing down because of the current level of inflation.

In Switzerland the index of consumer prices remained stable in July, compared with June, at 104.5 points. Year-on-year, however, inflation was up 3.4% in July, according to the Federal Statistical Office.

The BVG-Kommission has recommended the Federal Council to leave the minimum interest rate paid on occupational pensions unchanged at 1% for 2023.

The minimum interest rate must be paid on pension assets in the mandatory part of the occupational pensions insurance, for members earning at least CHF21,510 per year.

The proposals by the BVG-Kommission for the minimum interest rate in 2023 ranged from 0.25% to 1.5%.

In the final vote, the majority of the commissioners voted in favour of 1%. The decisive factor in determining the amount of the minimum interest rate was the development of the yields on bonds, and returns on equities and real estate investments.

This year, rising inflation and rising interest rates have led to significant drawdowns for equities and bonds.

According to the occupational pension supervisory commission, OAK BV, the financial situation of Swiss pension funds has “deteriorated significantly” in the first half of 2022.

Returns of Swiss pension funds collapsed to, on average, -12.3 % in the first six months of 2022, from an average net return on invested assets of 8% in 2021, with losses across all asset classes except infrastructure, it added in its report.

A large number of Swiss pension funds had to tap into reserves to fend off market fluctuations to continue to guarantee their obligations in the first half of the year, it said.

The BVG-Kommission underlined that not all the returns of a pension fund can be used to pay the minimum interest rate.

Pension funds have an obligation to build up reserves to withstand market fluctuations, make the necessary provisions and meet statutory requirements to pay pensions, it added.

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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