SWITZERLAND - Swiss voters have overwhelmingly rejected a proposal to use up to CHF1.5bn (€950m) from the Swiss National Bank's annual profit to bolster the state pension scheme.

In a referendum on Sunday, nearly 59% of Swiss voters voted no to the proposal, known as KOSA. Breaking down the vote by Swiss cantons, all but three - Basel City, the Italian-speaking canton of Ticino and Geneva - voted down the proposal.

The result was a surprise, as polls going into to the vote had reflected that KOSA's supporters could win with a margin of up to 11 percentage points.

The result was also a big defeat for Switzerland's Social Democratic Party (SP), which had engineered the referendum. The SP had argued that the profits from the SNB were needed to avoid increases in pension contributions or cuts in benefits.

But Switzerland's centre-right parties, with finance minister Hans-Rudolf Merz as their spokesman, staunchly opposed the measure. Merz called KOSA "explosive", noting that it would mean less money for the government and cantons and would have undermined the SNB's independence.

Currently, the cantons receive two-thirds of the SNB's annual profit, while the government in Berne gets the rest. The SNB has pledged to transfer CHF2.5bn annually until 2012.

KOSA's opponents got a big boost last June when SNB president Jean-Pierre Roth put himself firmly in their camp. Roth called the outcome of Sunday's referendum "a vote in favour of the independence of the Swiss National Bank".

SP president Hans-Jürg Fehr said the "ball was now in the court of the winners" to come up with an idea of how to shore up the state pension scheme, known as AHV. He insisted that his party would block any attempt to raise contributions or cut benefits.

An idea how to shore up AHV has already been tabled. Following the vote, Merz said he would soon draft legislation diverting CHF7bn in profit earned by the government's sale of the SNB's gold to the AHV. The measure enjoys wide support among all the parties in the Swiss parliament.

In a related development, the government last Friday agreed to raise the benefit from AHV by 2.8% from January 1, 2007. As a result, the minimum monthly benefit from the scheme will increase to CHF1105 from CHF1075, while the maximum benefit is to rise to CHF2210 from CHF2150.

The government also raised the threshold for mandatory retirement saving on the corporate level. This means that from January 1, employees earning at least CHF19,890 annually must contribute to a second pillar scheme.

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