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IPE special report May 2018

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Aargau to pay CHF1.7bn into pension

SWITZERLAND - Standard & Poor's has awarded the Swiss canton of Aargau the top credit rating ‘AAA' partly because of the region's commitment to fully fund its Pensionskasse from next year.

In order to bring the CHF6bn (€3.6bn) Aargauische Pensionskasse (APK) to a fully-funded status, including reserves, the canton will have to inject CHF1.7bn.

Upping the current 77% funding level has become necessary following a complete overhaul of the structure of the fund.

"[The] decision to inject CHF1.7bn capital into the canton's pension fund as of January 1, 2008, will increase its financial transparency, increasing net financial liabilities only for the valuation reserve," Standard & Poor's commented.

The canton will cease to partly fund the Pensionskasse via pay-as-you-go
following the changes and guarantee benefit payments which so far allowed for the underfunding of the fund.

Raising the canton's credit rating from ‘AA+' to 'AAA' analysts at S&P noted canceling the guarantee for the fund reduced "contingent liabilities considerably".

At last year's rating the agency had named the underfunding level of the pension fund as the reason for not achieving top marks.

Earlier this year the canton's regional parliament agreed plans to switch from a defined benefit to a defined contribution scheme leading several regional authorities to leave the fund for teachers and civil servants. (See earlier article: Cost of Swiss APK bailout: 31 leave, one stays)

However, the APK is planning to attract new members as it will be allowed to offer portfolios for non-government employees under the new structure.

Contribution rates will be amended slightly, increasing from 7% to 8% for employees and going down from 11% to 10% for employers.

"Driven by increasing tax revenues and tight expenditure controls, we expect Aargau to continue its very sound budgetary performance over the next few years," S&P added.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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