SWITZERLAND - The Swiss government has approved deeper cuts in occupational pension benefits from 2011, deeming the move necessary amid longer life-spans for retirees and dwindling capital market returns.

The government's move means the rate of conversion for occupational pension benefits will be cut to 6.4% for both female and male employees from 2011.

Hence, an employee with CHF100,000 (€63,000) in accrued pension savings will get an annual benefit equalling CHF6,400. The rate cuts must be approved by Switzerland's parliament to take effect.

The current rate is 7.1% for male employees and 7.2% for females. If the government had taken no action, the rate would have fallen to 6.8% by 2014.

The government justified the cuts by pointing out that retirees are living longer and that over the long run, capital market returns will not be high enough.

Despite the cuts, the government insisted that as per Switzerland's constitution, "a benefit level equalling 60% of salary is achievable with the first and second pillar".

But the government's move came under heavy fire from Swiss insurance association SVV, which argues that the cuts do not go far enough, and by the main Swiss union lobby SGB, which retorts that the cuts are wholly unnecessary.

"The reduction will not suffice to halt the hidden redistribution of income from working people to retirees and to put the second pillar on a solid foundation," the SVV said.

Instead, the rate should have been cut to 6%, the SVV said, adding that if one factors in the reasons cited by the government, it should be actually below 6%.

But Colette Nova, general secretary of the SGB, shot back that cuts in the rate of conversion were unnecessary. "The cuts are based on pessimistic return expectations that have not come to pass," she said.

Nova also accused the SVV of supporting the cuts "to further improve the profitability of its members at the expense of the insured".

Nova's charge was backed up by Swiss boulevard newspaper Blick. Blick noted that there was contradictory evidence on whether retirees were living longer. "It seems that you should only trust the statistics that you yourself have falsified," the newspaper said in a thinly-veiled attack on the SVV.

Blick also highlighted the SVV's economic interests in calling for lower conversion rates. "They can earn more money in the second pillar by not having to pay as much in benefits. Also, they profit from the fear among people that the second pillar will not suffice as they are able to sell them more third-pillar pensions," Blick said.


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