Swiss pension funds are trying to look on the bright side of their new-found situation, brought about after the issuance of 10-year government bonds with negative interest rates.

Christoph Ryter, president at the Swiss pension fund association ASIP, said a number of changes to technical parameters had already been accounted for, particularly at pension funds managing above-mandatory assets, which is currently the majority.

“I do not see vultures circling over the Pensionskassen yet,” he said. “They can adapt to the situation.”

Responding to media reports warning of possible funding problems in the Swiss second pillar, Olivier Vaccaro, a consulting partner at Aon Hewitt, said:  “Of course, if the current environment remains the same, there will be a big problem. 

“But pension funds are reacting – they are looking at plan design and de-risking adjustments and choosing more conservative technical parameters.”

One example of this is the PKSBB, the pension fund for Switzerland’s federal railways, which announced in recent months that it would lower its discount and conversion rates and shift to generation tables for its longevity calculations.

But Markus Hübscher, managing director at PKSBB, warned that interest rates were “falling faster than we can adjust our technical parameters”.

He added that the PKSBB had rejected plans to increase investment risk or risk budget, as the company feared it might have to pay more money into the scheme. 

However, the SBB has decided to buffer losses suffered by members through cuts in the conversion rate and will help the Pensionskasse to top up pension payouts.

This way, pensions will be kept at the level promised under the 5.8% conversion rate, despite the rate’s being cut to 5.22%.

Hübscher said the current debate on negative interest rates and the difficult market environment in Switzerland had helped make plain these measures to members.

“Before, many members did not understand the link between low interest rates and low expected returns of a pension fund,” he said.

“But, with a negative interest rate, now they understand.”

Peter Zanella, managing director at Towers Watson Switzerland, speculated that the debate might actually help sway public opinion on a number of contentious changes planned under the Altersvorsorge 2020 reform proposal.

In 2010, the voters rejected a cut in the conversion rate to 6.4%, but now the proposed cut to 6% might be “easier to achieve”, he said.

And Lukas Riesen, a partner at PPCmetrics, said the situation regarding pension payouts was actually better than expected, because, at the time the payout levels were guaranteed, providers had actually factored inflation into their calculations, which has not occurred.

“The system in itself remains good,” he said. “It just needs to be adjusted to reality.”