SWITZERLAND - The Swiss government is raising the minimum rate pension funds must credit to paid-in savings to 2.75% from January 1, as evidence suggests schemes are earning more through the financial markets.
Explaining the decision, the Federal Agency for Social Insurance (BSV), part of the Interior Ministry, said the average yield on seven-year government debt had risen to 2.6% - or just under the future minimum rate.
Moreover, "equity markets have been very positive in the past few years and good returns have even been generated with Swiss real estate," BSV said.
"The development of financial markets has been positive, so a minimum return of 2.75% is justified," it added.
Buoyed by positive market activity of recent years, Swiss schemes returned 11% in 2005 and 6.9% in 2006. According to Credit Suisse, schemes' return for the first half of 2007 was 3.3% - but that was just before this summer's market turbulence, sparked by the US subprime crisis.
In raising the rate from 2.5% to 2.75%, the government has followed a recommendation from the BVG Commission - made up of representatives from Swiss employers, unions and pension funds - which advises it on the management of the second pillar.
BSV noted the union representatives - who had called for a rise in the rate to 3% - were out-voted by other members of the commission recommending the minimum rate climb to 2.75%.
Predictably, the government's decision drew criticism from the Swiss Union Federation (SGB). The SGB argued a larger increase in the rate was appropriate both because of the strong returns for Swiss schemes in 2005 and 2006 and because they had rebuilt their reserves to deal with market turbulence.
"The lower the minimum guarantee is, the more profits are held by Swiss insurers and pension funds. A minimum that is too low only benefits the insurers and pension funds and hurts their insured," the SGB said in a statement.
In contrast, Swiss insurance association SVV criticised the increase in the minimum rate as being too high.
"The current conditions on the markets do not justify such an increase. Bond yields, which are crucial for pension funds, remain at a low level despite the recent upward moves. Equity markets also remain volatile," said the SVV.
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