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Switzerland’s APK outlines switch to DC

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SWITZERLAND – Aargauische Pensionskasse (APK), a CHF4.9bn (€3.1bn) pension fund for Swiss civil servants, plans to fully fund its liabilities by January 1 2008 following several reforms – notably a switch to defined contribution from defined benefit.

Due in part to damage caused by the equity market crash of 2000-2003, APK last reported a coverage ratio of around 75%. The ratio gauges the extent to which liabilities are financed.

In a statement, APK said that beyond the switch to DC, it would raise the retirement age to 65 and require 40 years of contributions to the fund for a maximum benefit.

“The reforms will transform APK into a healthy and powerful pension fund,” the scheme said.

To cushion the blow of the reforms, APK said civil servants over the age of 55 would have their full benefit guaranteed, while those between 40 and 55 would get “a partial guarantee” of their benefit.

For the DC arrangement, APK said public employers would contribute 60% and employees 40%, adding that this was typical for other pension funds using DC.

APK put the total cost of the reforms at CHF1.58bn. It said that the cost, to be borne by the Swiss canton of Aargau, would be partly covered by the sale of assets. APK insures about 29,000 civil servants and teachers in the canton. Its pensioners number close to 7,000.

In February, the fund said a strong performance by equities and commodities helped it achieve a 13% return on assets during 2005 – its best ever.

APK did not disclose its asset allocation for 2005. At the end of 2004, the scheme had 29.6% invested in bonds, 11.7% of which was denominated in foreign currency. Allocations to equity totalled 31.3%, of which 18.7% was to foreign shares.

APK also had another 18.2% invested in real estate assets and 9.7% in loans. Alternatives like commodities accounted for almost 6% and cash 5.3%.

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