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Switzerland outlines possible changes to second-pillar pension system

EUROPE - The Swiss government has published its long-awaited consultation report on potential reforms to the country’s second-pillar pension system.

The 160-page report touches on a wide range of subjects discussed in connection with the mandatory second pillar, set up in 1985, including such hot topics as the conversion rate and the minimum interest rate.

Other topics include administration and asset management costs, solvency, the liquidation of pension funds, and the overall size of the second pillar, which currently consists of around 2,000 Pensionskassen, down from more than 4,000 when the system was implemented.

In the report, the government suggested it would “make sense” to cut the conversion rate (Umwandlungssatz) from 6.8% to 6.4% or even lower by 2015 to avoid having to make further adjustments in the near future.

It said the ultimate decision on the conversion rate should be left with the government or handed over to the Oberaufsichtskommission - the new top supervisory body, which officially started work on 1 January.

To soften the blow of such a reduction, the report recommended increasing the share of the social insurance contribution going into the second pillar and reducing payments into the first pillar fund AHV.

Other possible measures included a ‘solidarity rescue fund’ for pension funds in financial difficulty, as well as increasing the retirement age, but without cross-financing from the first pillar.

On the subject of the minimum interest rate, the report suggested this could either be set by the board of pension funds themselves or remain with the BVG commission and the government.

The report also suggested that the legal parameters for the technischer Zins - the rate used to discount future liabilities - might be scrapped and made more “flexible”.

Another hot topic in recent months has been the issue of solvency, and the recovery of Pensionskassen where retirees could be asked to participate financially in future, and where fully funded Pensionskassen could be allowed to implement recovery measures to avoid future shortfalls.

Overall, the report calls for increased transparency, from both pension funds and product providers.

Swiss pension fund association Asip welcomed the report as a basis for further discussion, but it also said the consultation “lacked priorities and focus” and might lead to another “wave of regulation”.

Interested parties have until 5 March to comment on the draft report.

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