This relatively comfortable world of Swiss pensions with its world renowned three pillar system has been put under the microscope in the last year with Swiss pension scheme funding levels hit dramatically by the continued fall of stock markets.
A report in June this year by ASIP, the Association of Swiss Pension Funds (ASIP) estimated that some two in five plans (43%) were technically underfunded.
In response, the Swiss government has been forced, for the second year in a row, to cut the generous guarantees that once characterised the country’s supplementary pensions pillar.
In 2002, the Swiss authorities cut the minimum income guarantee for pension funds from its historical 4% level to 3.25% from January 2003.
However, with the criteria for determining the minimum interest rate based on returns of 10 year Swiss government bonds (currently hovering just above 2%) and returns on investments (negative in recent years), the Swiss Federal Office for Social Security has decided the guarantee level is still too high.
It has recommended a reduction of the guarantee to 2% – a cut that looks certain to be ratified for implementation from January 2004.
On top of that, Swiss pension funds in serious funding trouble may be exempt from the interest guarantee altogether. Suggestions are that around a third of Swiss funds could be presently below 80% funded and many are already increasing contribution rates in a bid to rebuild technical solvency ratios.

At the same time, Swiss insurance companies have also taken the opportunity to protect their own balance sheets by upping contribution requirements and dropping their pension conversion rates for the non-mandatory portion of the Swiss second pillar.
Credit Suisse owned Winterthur announced plans in June to reduce its annuity transfer level from 7.2% to around 5.84% for males aged 65, and 5.45% for females aged 62 for account balances above the mandatory minimum under Swiss law, with the reduction to take effect from January 1 2004.
These pension cost-cutting measures by government and industry alike are not being taken lying down, however.
Swiss unions, already upset by lower pension contribution rates, have responded furiously to the fact that poorly performing funds might now be able to shirk their retirement guarantees.

In addition, an association to protect the small and medium-sized companies most affected by the actions of the Swiss insurers was recently established in Bern. The ‘Schutzgemeinschaft fuer KMU’, headed by Swiss entrepreneur Otto Ineichen, says it will try to stop both Winterthur and Zurich from cutting annuity conversion rates, claiming that exorbitant premium hikes and annuity cuts in company pensions could threaten the very existence of many firms.
Such dissatisfaction has not been lost on the government, which set up two expert commissions last month to analyse any structural problems within the country’s occupational pension system and report back by the year-end.