SWITZERLAND - The Swiss government has lowered the minimum return rate for Pensionskassen by 0.75 percentage points to 2%.

The reduction is a compromise between the 2.25% minimum rate demanded by unions and the 1.75% industry representatives would have liked to see. (See earlier IPE story: Minimum return rate to be slashed)

"A lower rate would not have been appropriate as a cautious approach had also been taken in times of good economic growth," the government noted. but this new minimum return rate "will allow Pensionskassen to accumulate buffers" even in the current market climate.

The government also confirmed in light of the financial crisis the next adjustment of the minimum rate may take place next year, breaking the usual two-year cycle.

In a statement, federal authorities acknowledged the severity of the financial crisis by citing the performance of various indices, as the Swiss Market Index SMI lost 26.7% this year until October 20, and the Pictet BVG Index 25 comprised of 25% equities and 75% bonds lost 9.62%.

The Pictet Index, which is used as a benchmark by many Swiss Pensionskassen, also showed "an unsatisfactory return of 0.94%" in 2007, according to the government.

In contrast, real estate had developed positively at least until Q3. (See earlier IPE article: Bonds better than real estate - study)

"But the ratio of real estate investments with around 13% on average is too small to be able to compensate the negative developments" - leaving pension funds with "considerable negative performances" for this year, the government added.

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