SWITZERLAND - A necessary cut in the conversion rate applied to Swiss pension funds should not be compensated through funding from the first pillar, Swiss pension fund association ASIP has told the country's social ministry.

Coming as the social ministry BSV closed its consultation on an extensive report examining the second pillar, ASIP renewed its criticism of the report for its priorities and lack of focus, and called on all parties involved to "come up with solutions quickly" over the coming months.

According to the association, the main priority at present should be a lowering of the existing conversion rate, widely rejected by the Swiss voters in a 2010 referendum.

However, Hanspeter Konrad, managing director at ASIP once again warned against compensating cuts in the conversion rate with payments from the first pillar fund AHV.

"This argument overlooks that the AHV will most likely have to struggle with demographic effects from 2020 onwards," he said in a statement.

Asip president Christoph Ryter added that the "correct conversion rate is a capital protection for the insured" and that the minimum conversion rate should be one that can be achieved by all pension funds.

He warned that once interest rates rose again, pension funds' bond portfolios will come under pressure and an increase in inflation would make pension increases necessary.

Further, Ryter said that the returns from real estate over recent years were "not sustainable".

From the report on the second pillar the ASIP also rejected the idea of mandatory solvency tests for autonomous Swiss pension funds, as those collective schemes were "nothing like insurers".

In other news, the CHF7.6bn (€6.3bn) Aargauische Pensionskasse (APK) noted that it had made up most of the losses suffered in 2011 already in the first quarter 2012.

For last year, the APK reported a loss of -3.5% leading to a drop in the funding level from 98.9% to 92.4% year-on-year.

However, in a press release the APK's managing director Susanne Jäger stated that the fund had recovered in the first quarter of 2012 generating a return of 3%.

But Jäger added that the fund remained in a "challenging environment" making "the continuation of the broad diversification and constant vigilance" all the more necessary.

The fund invests around 25% in bonds half of which domestic, another 25% in equities with a slight overweight in foreign shares, 16% in Swiss real estate and 14% in mortgages.

Further, the APK hedges all of its commodity (8.4%), hedge fund (3.4%), infrastructure (2.2%) and international real estate (0.1%) investments.

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