SWITZERLAND- The minimum rate of return which Swiss mandatory supplementary pension schemes are obliged to guarantee to plan members may soon be relaxed.

A committee of the BVG, the federal body which oversees the Swiss mandatory second pillar system, has recommended a more flexible application of the interest rate which occupational pension plans within the scheme must pay on members’ accrued assets each year.

A guaranteed minimum rate of 4% was introduced in 1985 and has remained unchanged since then. It is the cornerstone of BVG legislation which mandates levels of supplementary coverage for all employees with average earnings above the first pillar ceiling of CHF 24,000.

The rate of interest is currently a nominal rate and the BVG committee considered whether this should be changed to a real rate of interest, taking into account rising levels of inflation.

It concluded that this would be impracticable since the real interest rate fluctuates and would make it difficult for pension schemes to guarantee a minimum rate of return.

As a compromise, the committee has suggested retaining the guaranteed nominal rate of interest but being more flexible about the level at which it is set. The minimum rate could vary within a certain bandwidth, it has suggested.

This could resolve the current controversy in Switzerland about whether the minimum interest rate should be relaxed in the light of heavy falls in the capital markets.

The Federal Office for Social Security (BSV) said the report would provide a valuable basis for its work in this area. The BSV will now the test the minimum interest rate against the recommended procedure.

Any decision to change the rate will have to be approved by the Upper House of Parliament.