SWITZERLAND - Two major Swiss pension funds, the Publica fund for federal workers and the SBB rail scheme, are now closer to switching to defined contribution.

The Upper House of the Swiss parliament, Ständerat, wants to see the CHF30bn (€19bn) Publica switch from defined benefits to DC. This step has already been agreed for the Federal Railways (SBB) fund.

In June the Lower House of Parliament, the Nationalrat, had rejected the switch arguing that pensioners would lose too much money.

Now, the bill will have to be re-considered by the Lower House with some changes by the Ständerat. It is widely expected that the amended bill will pass - with the law coming into effect from January 2007.

Notable among the changes was the scrapping of the idea of creating a separate fund for already retired civil servants due to fears of high costs. This was seen as one of the main reasons why the bill did not pass parliament in June.

Instead, a one-off payment of CHF900m from the Swiss federal budget will be made towards the reserves for annuities. Any further risks will have to be covered by Publica - possibly at the expense of active members.

And 45 to 55-year-olds, those likely to be hard hit by the change, will see their contributions being decreased slightly over a period of five years.

The Ständerat also rejected stricter regulations for pension fund managers suggested by a parliamentary commission in the wake of the Swissfirst scandal.

It was stressed that this was not a general rejection of more extensive disclosure requirements but that solutions suggested by the commission might be impractical.

A switch from DB to DC from 2007 will also be part of the measures taken to address the CHF1.8bn deficit in the roughly CH14bn Swiss Railway pension fund, Pensionskasse SBB.

In talks between the SBB and federal authorities over the last months it was agreed that the deficit in the annuity reserve for retired people will be covered by the government. The deficit in the active-members part of the fund will be covered by the SBB and the active members themselves, Roland Binz, SBB spokesman told IPE.

The company will use returns and cashflow produced in its real estate portfolio without selling off property. 

In November last year, IPE reported that the Swiss finance ministry appointed consulting firm Watson Wyatt to assess solutions to problems at the postal and the rail pension fund.