The Swiss pensions industry has harshly criticised the decision of the Swiss occupational pension supervisory commission OAK BV to reformulate the definition of improved benefits with regard to multi-employer pension funds, and based on the occupational pension law BVV 2.
According to OAK BV, improved benefits mean interest rates on retirement assets of active members higher than the weighted average technical interest rates published in the report of OAK BV on the financial situation of pension institutions, rounded to a quarter of a percent.
This applies to multi-employer pension funds without a state guarantee and not offering pension plans guaranteeing the full coverage of pension benefits, therefore investing assets with a conservative approach, it said.
The minimum interest rate set by the Federal Council is not considered as improved benefit, it added.
The pension funds association ASIP has questioned the real meaning of “improved benefits”, which include interest on retirement savings going beyond projection parameters, it said in a statement.
This would also include an interest rate that generally appears to be too high given the financial situation of the pension fund, it noted.
“This is exactly where the OAK BV definition comes into play and classifies any interest on retirement savings that goes beyond the average technical interest rates according to the OAK BV report and the minimum interest rate [set by the Federal Council] as an improvement,” the association added.
ASIP also thinks that OAK BV’s definition creates an incentive for multi-employer pension funds to set the funding ratio as high as possible – for example by increasing the technical interest rate – and the target value fluctuation reserve as low as possible, in case of positive returns, to not fall under the regulation.
As a result, the new regulation may not mean an improvement, but rather a threat to the financial stability of the pension fund.
According to article 46 of the BVV 2 law, multi-employer schemes are allowed to boost benefits, in the case fluctuation reserves have not been fully accumulated, if a maximum 50% of the income, before the buildup of value fluctuation reserve, is deployed to improve benefits, and if they have accumulated a fluctuation reserve for at least 75% of the current target value.
Swiss pension funds are required by law to build up reserves to compensate for fluctuations in capital markets.
According to Federal Social Insurance Office, article 46 paragraph 1 of the BVV 2 is intended to prevent that pension funds quickly improve benefits when returns are good, without giving priority to set aside reserves first, OAK BV explained.
Now, with its definition, OAK BV forces pension funds to set interest rates retrospectively, against the average technical interest rates published in the report on financial situations of pension institutions by OAK BV in May, but applying from 1 January of the following year, a gap in terms of time creating problems for the schemes, according to ASIP.
OAK BV’s definition applies from 1 January 2024, the regulator said.
Inter-pension, which represents the interests of multi-employer schemes, has recommended its members to not calculate their interest rate according to OAK BV’s definition.
It considers the definition “materially incorrect” because it practically sets an upper limit for interest rates, without a legal basis, interfering with the responsibilities of the highest body of pension funds.
For PKNetz, the Swiss association representing employees in the second-pillar pension system, the new definition also creates wrong incentives for pension funds, and poses timing questions.
The Swiss Chamber of Pension Fund Experts (SKPE) has firmly rejected the proposed change because it is “too restrictive”, it said in a statement.
The new definition would have an “enormous impact” on pension funds, practically corresponding to a new standard, it added.
The latest digital edition of IPE’s magazine is now available
No comments yet