SWITZERLAND – The CHF20.2bn (€12.8bn) UBS Swiss pension fund will change from a defined benefit to a defined contribution scheme from January 2007, without increasing contributions paid by members.
This was one of a series of changes announced by UBS today to strengthen the financial viability of the fund, according to a UBS statement.
Other changes include a reduction of the technical interest rate from 4% to 3.5%, and a reduction of the coordination amount from CHF34,457 to seven eighths of the maximum AHV pension, i.e. to CHF 22,575.
“It will strengthen the position of the pension fund in the long term,” said a UBS spokesperson. “The pension fund is in a very strong financial position. But to make changes, you have to be in a position where you are strong.”
UBS will finance all extra contributions associated with these changes, amounting to an extra CHF100m annually. The scheme will also make an additional one-time contribution from reserves of CHF760m.
A UBS spokesperson told IPE that the annual CHF100m would be for the longer-term. “I don’t want to speculate for how long,” she added.
Internal and independent external actuaries were involved in the decision-making process, but no names were mentioned. UBS also stated it consulted with unions, which were positive about the changes.
The change from DB to DC will affect all staff at UBS. “UBS has one pension fund for all employees in Switzerland, including upper management,” said the spokesperson.
“With these moves, UBS will ensure that it continues to provide its employees with a competitive pension plan over the long term,” said UBS.
“The financial viability of the fund will be strengthened without the need for higher contributions from the participants.”
Of course, the shift to a DC scheme means that employees will have to take more investment risk, said a spokesperson. “They can be good ones or bad ones if performance is not so good,” she said.
“But the new system will still give employees the same possibilities to achieve the same level of benefits.”
A UBS spokesperson in the UK stated that UBS is planning no other similar changes to pension funds in other countries.
The Swiss Bank Employees Association told IPE that the move from DB to DC schemes was spreading across the banking industry. However, it added that because increasing risk has been shifted onto employees, it was important that employees are well-represented.
Earlier this month, the scheme announced a 12% return on pension assets for 2005 – up from CHF18.6bn or 5.5% in 2004.
Furthermore, the scheme deficit was cut from roughly CHF1.7bn to CHF743m. UBS also plans to contribute CHF416m to these plans in 2006.