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Swiss Life warns of 2nd-pillar “casino mentality”

SWITZERLAND - The chief executive of insurer Swiss Life, Paul Mueller, has warned that accepting shortages of coverage in the Swiss second pillar was a “casino mentality”.

“The worst way is to accept shortages of coverage, to hold on to equities and hope in the stock exchange. This is a casino mentality and a sneaky way to pay as you go,” Mueller was quoted as saying in an interview with the Swiss newspaper SonntagsZeitung.

Mueller, chief marketing officer and CEO of the firm which leads the life insurance market and is second in occupational pensions arrangements, commented on the second pillar, which he said was currently worth 580 billion francs (376.3 billion euros), 150 billion francs of which are deposited with insurance companies.

He focused on under-funded pension schemes and the effect of shortfalls on workers’ mobility.

“Independently of the legal form of pension funds, every insured person must know that his pension is 100% financed. That means that current shortfalls must be financed,” he said.

Full solvency is a requirement of the mobility law, he pointed out. “The law says that anyone who decides to change job, can bring with him 100% of his pension and not only
capital according to the recovery ratio.”

He also said that if autonomous pensionskassen made their calculations counting on a return of four to 4.5%, but if they were compelled to use the “realistic” return rate of 3.5% they could turn out to be less funded that expected.

“If they had to reckon, as we must do, with 3.5%, the recovery ratio should sink by 10%,” he said. “It is between 20 to 40 billion Swiss francs (25.9 billion euro),” he observed.

Swiss Life, he said, conforms to a ‘very conservative’ model allowing them to ensure that ‘all is safe’ for their 350,000 costumers.

“This costs us a part of the returns. With the possibility of shortfalls, it is easy to awake fantasies,” Mueller said.

He also called the 2.5% minimum guaranteed interest rate for occupational pensions “unwise”.

Referring to the recent decision of the Swiss federal council to raise minimum interest from 2.25% to 2.5% he said: “I respect the decision of the government but I also find it unwise.”

“Long term bonds yield approximately 2.62%and we must guarantee 2.5%. It narrows the investment freedom.”

The change, prompted by the improvement in financial markets and the financial situation of retirement institutions, will kick in from January 1.

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