The PVK, the pension fund for the Swiss capital of Berne, has conceded that its new proposed recovery plan would set it back by another CHF240m (€195m).

As per year-end 2012, the CHF1.8bn public pension fund had a 94.4% funding level.

As part of the structural reform of the second-pillar pension system in Switzerland, which has been implemented over the last few years, public authorities have until the end of this year to decide whether to fund their pension funds fully within the next 10 years or leave them partially capitalised for several decades.

The city of Berne has now decided to go with a part capitalisation and even increase the funding gap over the short term to further adapt its technical parameters.

In January, the PVK lowered the discount rate, or technischer Zins, applied to active members’ assets from 4% to 3.75% as an “urgently necessary measure to synchronise the parameters for calculating future pension payouts with the actual return expectations”, according to its 2012 annual report.

As per January 2014, the fund wants to cut the technischer Zins by another 100 basis points to 2.75%.

“This” it said, “would increase the underfunding to CHF341m and bring down the funding level to 84.5%.”

City authorities explained that this step was necessary due to the “difficult situation on the capital markets”.

After that, the fund will aim for 100% funding within the next “20 to 40 years”, with the cost being “fairly split” between employees and the public authorities, which are members of the fund.

The measures to come into effect from 2015 are to include higher contributions as well as cuts in benefits.

Fund members now have until 13 November to comment on the proposals.

For more on public pension funds in Switzerland, see the December issue of IPE magazine.