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Swiss government relents on conversion rate to win over voters

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A Swiss government official has expressed hope that the Altersvorsorge 2020 pension reform package will survive an “unavoidable” referendum and acknowledged that the government conceded on a major point to achieve this.

In its proposed draft – to be debated by Parliament – the government recommended lowering the conversion rate used to calculate pension payouts from accrued assets from 6.8% to 6%, even though it believes the 6% figure to be too high. 

Both industry representatives and government experts agree on the need for the sizeable cut to avoid further transfers of active members’ assets to pensioners.

Swiss actuaries, in their comments on the draft law, strongly recommended lowering the conversion rate even further.

However, Jürg Brechbühl, director at the Swiss Federal Insurance Office (BSV), told participants at a recent conference in Zurich that the government had set the conversion rate level with “the referendum in mind”.

He said the Swiss government could “not afford to lose another vote” on the reform of this key rate in the second-pillar pension system.

In March 2010, the majority of the Swiss electorate rejected a proposal for a cut in the conversion rate from 6.8% to 6.4%.  

This time, the cut is more severe, but the reform package includes measures to guarantee the level of mandatory pension schemes and allows people with lower income, as well as more part-time employees, to join the second pillar.

At the conference organised by the Zurich regional supervisory body BVS, Brechbühl argued that “the true costs” of the conversion rate would soon “become visible”, as new pension plans will be allowed to raise additional contributions from their members if the conversion rate proves too high.

The BSV director stressed that the Altersvorsorge 2020 reform package “should not be dissected” but passed through Parliament and presented in the referendum as a whole.

He pointed out that past attempts at offering reforms in a “piecemeal fashion” had failed.

With a single package, any “cherry picking” can be avoided, he said – and “it generates greater trust than several small packages”.

He admitted there was “still some risk of failure involved” with large reform packages, but said it was “important what they looked like”.

As for the introduction of individual risk choices in Swiss pension plans, the BSV’s director announced that a draft bill would be published “soon”.

The issue of the so-called 1e plans, named after a paragraph in the BVV2 investment regulations for Swiss pension plans, has been brought forward by an MP.

The initial problem was that members with a riskier strategy in their pension plan would have left possible losses with the pension fund when transferring to a new Pensionskasse.

Now, the losses will have to be transferred as well, but, in turn, each Pensionskasse offering more than one investment strategy must introduce at least one with very low risk. 

Read what Swiss market participants have to say about applying correct parameters and calculations in Mark-to-market obligation a ‘disease’, says Switzerland’s AHV 

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