SWITZERLAND - The CHF4.3bn (€2.85bn) Pensionskasse for the canton of Luzern will increase its members' retirement age and introduce additional contributions to the scheme, in a bid to get it back to full funding.

The retirement age for LUPK members is currently 62, which is below the statutory retirement age in Switzerland of 65. But officials have announced, via a draft amendment by the canton's government (Regierungsrat), that the scheme's retirement age will be raised to 63.

The canton's parliament (Kantonsrat) will have to consent to this increase in the retirement age. However, it has no influence over other measures from the recovery package.

One other change being considered is the lowering of the conversion rate, which will come into effect from January 2010 alongside other measures.

The LUPK average conversion rate is also lower than the minimum rate currently set at around 7%, differing slightly for men and women, in part because the LUPK has a lower retirement age that many other Swiss pension plans. (See earlier IPE story: Swiss pensions could be 131 days from fresh conversion)

At present, the conversion rate is 6.2% for someone retiring at 62, and the discount rate used to calculate this rate is set at 4%.

However, the discount rate is being lowered to 3.5%in January and the conversion rate will gradually be lowered to 5.7%, which equates to a lowering of the annual pension payout by 8.1%.

"The conversion rate is technically too high and the LUPK is suffering considerable loses from each retirement because of it," said the regional government in a statement.

It has calculated that last year's losses, from conversion rates seen to be too high, amounted to CHF8m.

Similarly, the conversion rates for people retiring at other ages will also be amended to bring the average "pension loss" for members down to 6% per year.

Like other funds, the LUPK will also make additional contributions although these will have to be raised from employers and employees. (See earlier IPE story: Swiss canton fund raises contributions

The funding level of the LUPK will be reviewed on 30 June every year over the next few years, to determine whether additional contributions are needed and what they should be.

Contributions will be raised by 1.5% if the funding level of the Pensionskasse is below 100% but above 95% on that date, but will be increased to 3%, to be shared between employers and employees, if the minimum funding level is lower still.

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