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Swiss roundup: Second-pillar guidelines, BLPK funding

SWITZERLAND - Switzerland’s new top regulator, the Oberaufsichtskommission (OAK), has unveiled its guidelines for the second-pillar pension system.

In the guidelines, it confirmed that public funds would not be required to achieve full funding by 2013 and reiterated that certain fully funded Pensionskassen would be able to cease granting interest on members’ assets in order to avoid becoming underfunded.

The OAK also declared that the “sometimes considerable” costs for which pension funds were not directly billed - with pooled fund structures, for example - had to be listed in an appendix of the annual report.

It said it would also aim to ensure this new regulation would not increase administrative costs for pension schemes.

It said it would compel fund providers to disclose these costs voluntarily or risk having their products deemed “untransparent”.

The OAK also criticised the fact that the country’s new cantonal supervisory bodies had failed to comply fully with regulations regarding independence.

Until now, a cantonal government representative had been able to sit on the supervisory boards of several second-pillar supervisory bodies.

The recent structural reform - under which the OAK was created and the cantonal supervisors were merged to form regional bodies - prohibits this, however.

With the reform, the supervisors became independent bodies, a fact that should be reflected in the make-up of the boards, the OAK said.

It stressed that this was of particular importance now, given the difficulty of trying to achieve full funding at most public pension funds within the next 10 years.

In other news, Swiss pensions consultant Martin Wechsler has proposed exploiting the low-interest-rate environment to refinance the CHF5.5bn (€5bn) Basellandschaftliche Pensionskasse (BLPK), which requires approximately €2.3bn to achieve full funding by 2014, as required under new regulations.

Under the canton’s current proposal, the money would be granted as a loan at 3% interest, to be paid back over 40 years, but Wechsler calculated that this would entail an additional CHF1.7bn in interest payments.

He instead recommended the canton - a “good debtor” - issue bonds, as it would only have to pay 0.5% interest on a 10-year bond or 0.9% on a 30-year bond.

He said this would save the pension fund more than CHF1.3bn, allowing it to become debt free in just 27 years, rather than 40. 

“It has never been so cheap to refinance an underfunding on the capital markets, and this one-time opportunity has to be taken,” Wechsler said.

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