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IPE special report May 2018

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Swiss BVK members threaten to drop scheme due to rate changes

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The University of Zurich has commissioned an independent study to determine whether recent technical-parameter changes will affect the pension fund’s ability to fulfil its obligations.

The fund (BVK) – for local entities and other authorities in the canton of Zurich – decided last summer to make major cuts, lowering the conversion rate to 4.8% and the discount rate to 2%. 

Other pension funds in Switzerland have taken similar steps in recent years, but the BVK’s amendments, while welcomed by many experts, were seen as being particularly drastic.

The BVK is investing CHF950m (€775m) in total to soften the effects of the changes to the technical parameters.

People above the age of 48, once the new parameters are applied from 2017, will receive a monthly top-up if they remain with the BVK for another five years.

Those that have already reached the age of 60 that year “will be guaranteed a minimum pension based on a theoretical retirement a day before the lower conversion rate takes effect”, a spokesman for the pension fund told IPE.

“This is to prevent people being forced into early retirement because of the measures taken.”

The BVK’s spokesman said there was “a lot of pressure on the young people who are getting less interest on their assets today because the money is needed to finance pension promises made with a too high conversion rate”.

Many of the authorities that are currently members of the BVK, however, are now criticising the move, and some are even mulling an exit.

The University of Zurich has now established a working group to look into the effects the changes will have on its 4,500 employees in the fund.

The university said in a newsletter to its members that the “drastic changes allow the University to terminate the contract with the BVK early per year-end 2016 and to join another pension fund”.

It put together a panel of experts to look into “all possibilities”, including “getting offers from other Pensionskassen”.

Another body in Zurich, the VZGV – an advisory board to municipalities made up of former municipal and city employees – has also commissioned an independent study with the consultancy Dipeka that will be used to advise municipalities and cities in the canton.

The study’s author, industry expert Boris Morf, said the cut in the technical parameters was an “adequate response to future developments” and that the application of a generation table instead of a periodic table was “sensible” and “positive, especially for young members.

He added that “most of the providers are confronted with the same problems as the BVK, and members have to be careful not to get out of the frying pan and into the fire”. 

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