The Swiss government’s decision to cut the minimum interest rate for pension funds has been welcomed by local pension association ASIP.

The Bundesrat said 2016’s rate would be set at 1.25%, a reduction of 50 basis points over the level agreed for 2015.

The cut is in line with a recommendation supported by a significant majority of the statutory occupational pensions commission (BVG-Kommission).

The Mindestzins, which dictates the level of compensation active members must be granted each year, is reviewed annually in line with prevailing Swiss government debt yields and return expectations from other assets.

The Bundesrat noted that the yield on Swiss seven-year bonds stood at -0.38% when the commission made its recommendation in August.

In a statement, Hanspeter Konrad, president at ASIP, told IPE he supported the proposed reduction.

“The decision is necessary in light of the low-interest-rate environment, accentuated through the negative rate of interest set by the Swiss National Bank.

The industry has repeatedly criticised the central bank’s monetary policy, as well as its now-reversed decision to shield both the country’s largest pension fund, Publica, and its own occupational scheme from the impact of negative deposit rates.

But Konrad struck an upbeat note about the return prospects for the country’s second pillar.

“Due to the current low-price environment, this [1.25% rate] nevertheless results in a welcome real return,” he said. 

The rate has fallen, if not steadily, over the last decade, standing at 2.5% in 2006 and falling to 1.5% by 2012.

It was then increased to 1.75% in 2014.

According to the Credit Suisse Pensionskassenindex, the average fund would have seen a loss of 0.14% over the first half of the year.