SWITZERLAND – The Swiss government has now confirmed its reform plans for the pensions system, under which the conversion rate will be lowered to 6%.

It also confirmed it might change the way the minimum interest rate is determined.

Local news dailies leaked a government reform proposal by the interior minister Alain Berset last week, and the now officially published report, entitled Altersvorsorge 2020, confirms media speculation that the minimum conversion rate is to be lowered from 6.8% to 6%.

The rate will be lowered over a four-year period by 20 basis points each year, starting from the day the law takes effect.

To soften the blow for the pension fund members, "additional financing" is going to be transferred from the Sicherheitsfonds, the pension protection vehicle into which each Pensionskasse pays contributions.

Colette Nova, deputy director at the Social Ministry (BSV), confirmed to IPE that this reduction would necessitate a hike in contributions to the Sicherheitsfonds.

She also explained that the Interior Ministry, of which the BSV is a part, has to draft a legal text by the end of this year, which will then be published for a consultation phase.

The government aims to draw up a law from those proposals and reactions by the end of next year.

Nova said a referendum would be necessary to increase the VAT, which is part of Berset's plan to channel more funds into the first pillar.

"It is also very likely there will be a referendum on the reform itself," she said, pointing out that, in Switzerland, anyone has the right to introduce a referendum if he can rally enough support.

Another major change proposed by Berset is the method for setting the minimum interest rate for Pensionskassen, which is currently set in advance for the next year based on assumptions for future returns.

The government now wants to switch to setting it towards the end of the year for the year-end calculations based on "observations" of returns, Nova said. 

In a first comment on the reform proposal, the Swiss pension fund association ASIP said the recommendations were "going in the right direction".

Hanspeter Konrad, director at ASIP, said the reform proposal was about ensuring long-term stability and "ending the unfair transfer between young and old in the second pillar".

In the paper, Berset called for measures to ensure that no funds are transferred from active members to retirees – which currently occurs in some funds due to the level of the conversion rate.

The government also confirmed plans to raise the legal retirement age for women from 64 to 65.

The Swiss weekend paper SonntagsBlick published the results of a survey on the reform proposal, showing that half of Swiss voters would be in favour of an increase in VAT to help finance the first pillar.

Surprisingly, a small majority (60%) said they were in favour of lowering the conversion rate – in March 2010, the majority had voted against such a step, which was then part of a larger package including caps on profits for insurers.