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Let funds decide on conversion rate – OECD

SWITZERLAND - The rate with which accrued pension assets are converted into benefit payments should not be decided by politicians, the Organisation for Economic Co-operation and Development (OECD) has suggested.

The organisation said in its latest economic survey of Switzerland it would like to see the pension funds themselves decide on the conversion rate rather than making it a political issue.

"It would be better if technical adjustments to the conversion rate, that are necessary to ensure sustainability, were not subject to political decisions," the OECD noted in its latest report.

Pension funds' decisions should be " subject to the regulatory requirement of actuarially appropriate calculation".

This proposal supports demands by the Swiss pension fund association ASIP which wants conversion rate changes to rely "solely on actuarial assumptions and the situation of the financial markets". [see earlier IPE article: Swiss Pensionskassen 'suffocated' by regulation]

The OECD calculated a further cut in the conversion rate will be necessary to "ensure that pension benefits will be fully covered by accumulated assets" in the mandatory second pillar system.

Swiss parliament is currently debating a reduction in the rate suggested by the government from 7.1% to 6.9% from 2008. [see earlier IPE coverage: Swiss pension cuts postponed]

In order to render the pay-as-you go first pillar system sustainable, the government will need to raise the retirement age in line with increasing longevity, the OECD noted. The current statutory retirement age is 65 for men and 64 for women but increases are already being debated by the government.

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