SWITZERLAND – Credit Suisse’s top economist says the Swiss pension system will be hit not just by demographic factors but by lower capital market returns.

“It is demographic developments above all that pose the long-term problem for the social security system,” said the bank’s head economist Alois Bischofberger in an interview on Credit Suisse’s web site.

He said that Switzerland will have just over two workers per retired person by 2030 – compared to four to one currently.

“This will probably be compounded by lower capital market returns than was previously the case,” Bischofberger said. “Both these factors are threatening to undermine the financing of the pension system.”

The bank added in a statement that pension conversion rates in Switzerland will have to be amended in the face of changing demographics.

“Although it is difficult to introduce restrictions to benefits, it will be necessary to adjust the conversion rates to suit the demographic circumstances,” the bank said.

Credit Suisse’s Winterthur subsidiary has been under fire for its plans to reduce its rate at which it converts occupational scheme members’ capital into annuity from 7.2% to 5.835% for males aged 65, and 5.454% for females aged 62.

“Similarly, raising the official retirement age cannot simply be excluded right from the outset,” Bischofberger added. “Aside from greater economic growth, there are essentially three solutions: hike premiums, cut benefits, and raise the retirement age.

“Yet higher contribution rates will raise the ancillary labour costs for the employer and absorb employees' purchasing power.”

In October Swiss National Bank board member Philipp Hildebrand said that economic growth was the best way to meet retirement and social welfare promises. According to figures released by the Swiss government late last year, one in five pension funds in the Swiss second pillar were underfunded in 2002.