The Swiss Federal Department of Home Affairs has told the Federal Council that a review of the minimum interest rate for occupational pension schemes is not necessary this year. Therefore the interest rate will remain at 1% for 2021.
“The minimum interest rate remains at 1% because the situation this year has been quite stable, even though at times with a certain volatility,” Joseph Steiger, deputy head of department at the Federal Social Insurance (FSIO), told IPE.
The Federal Council will review the minimum interest rate again in 2021, he added.
The main factors playing a role in determining the minimum interest rate level include the progress of returns on bonds, equities and real estate.
The Federal Social Insurance Office (FSIO) noted that yields on federal bonds remain low, with the interest rate on 10-year federal bonds that stood at -0.46% at the end of 2019 and -0.50% at the end of September this year.
The performance of equities, bonds and real estate was, however, “extremely positive” in 2019, it said. Last year’s returns have “more than compensated” for this year’s volatuluty in equity markets, while the performance of bonds and real estate continues to be positive, FSIO stated.
The federal commission for occupational pensions, BVG-Kommission, had recommended a lower minimum interest rate for occupational pensions in 2021 from the current 1% to 0.75%.
The rate applies to pension assets of the insured for the mandatory part of occupational pensions, or BVG-Obligatorium.
Christine Egerszegi-Obrist, BVG-Kommission’s president, previously told IPE that the suggestion was based on the consequences of the coronavirus crisis on Pensionskassen.
Asked about the impact of a 1% minimum interest rate for pension funds, the managing director of the Swiss pension fund association ASIP, Hanspeter Konrad, told IPE that a high rate would hinder the financing of “retirement losses” that continue to rise because of “excessively high conversion rates.”
ASIP has called for a reduction of the minimum interest rate to 0.5%, convinced that the cut would not impact the performance target of occupational pension schemes.
The financial situation of most pension funds has deteriorated this year compared to the end of 2019 despite partial recovery after the sharp price slump in spring, it said.