SWITZERLAND - The Federal Office for Social Security is recommending to the government a further decrease in the minimum guaranteed interest rate to two percent.

Last year the government opted to reduce the minimum guaranteed interest rate from four percent to 3.25% with effect from January 2003, and said it would re-assess the rate later this year with regards to further reductions, and the possibility of changing the rate from fixed to floating.

The criteria for determining the minimum interest rate are based on returns of 10-year Swiss government bonds and returns on investments. In addition, the financial situation of insurance companies is considered. The Federal Office for Social Security was invited by the government to give its opinion alongside the social partners and chambers of the government.

Based on returns of 10-year Swiss bonds, which are presently around 2.4%, the BSV 93 index of Pictet Bank, which measures a theoretical average performance of portfolios subject to the Swiss pension law, and the negative performance of other investments last year, the Federal Office for Social Security is recommending a reduction to two percent.

However, a minority of the commission believe that, given the difficult situation of many pension funds, this reduction is still insufficient, and have proposed that the rate of interest should be 1.5%. A further minority is recommending 2.7% as the rate based on an investment portfolio model.

The government will be consulting with the social partners, and the Federal Office for Social Security over the next few weeks.