From 2018, the pension fund of the Swiss canton of Basel-Landschaft, bordering the city of Basel to the south, will drastically lower its pension promises for future retirees.
The pension fund for employees of the canton of Geneva is also making cuts, albeit smaller ones.
First, the CHF27bn (€22bn) Basellandschaftliche Pensionskasse (BLPK) will cut the technical rate it applies to active members’ accrued capital (technischer Zins in German, or taux technique in French) from 3% to 1.75% from 2018.
Subsequently, the conversion rate (Umwandlungssatz) used to calculate members’ pension payout levels, will be lowered in four steps from 5.8% to 5% between 2019 and 2022.
In a statement, the pension fund explained the measures had become necessary because of the “massively worsened conditions on the capital markets”.
“The historically low interest rates mean that insufficient returns from the capital markets are flowing into Swiss pension funds,” the BLPK said.
“This means the Swiss retirement system can not longer rely on the capital markets as third contributor to the system to the same extent as before.”
Caisse de prévoyance de l’Etat de Genève, the CHF11.8bn pension fund for employees of the canton of Geneva, has also announced that, despite the fund’s positive estimated performance as at the end of 2016 - of 5.5% -, it is cutting the technical rate in one go from 3% to 2.5%.
In a statement, it said this would significantly reduce the pension fund’s margin relative to the minimum coverage requirement, and that, in the event of significant market fluctuations, it could therefore take temporary sanitation measures on top of structural measures to restore long-term financial equilibrium.
However, the board decided it was better not to wait to lower the technical rate if the trend toward lower rates persisted in the coming years.
CPEG has also decided to increase the retirement age for its plans, effective 1 January 2018, representing a cut in benefits of around 5%.
Other structural measures to ensure the long-term financial equilibrium of the pension fund may be on the cards, with CPEG saying that raising the retirement age only partially compensated for the lowering of the technical rate.
It said the board would therefore explore other structural measures, such as lowering the pension target.
‘Painful but necessary’
With their adjustments, the BLPK and CPEG follow the lead of other Swiss Pensionskassen that have already cut their rates in recent years.
Among them was the BVK, with one of the most drastic cuts in the conversion rate, to below 5%.
The pension fund – for the canton of Zurich – faced tough criticism from members, with some companies and authorities opting to leave the scheme.
While the average cut in future pension promises was calculated at 8% at the BVK, the average losses at the BLPK are even higher, at 14%.
“The cuts are painful but necessary to guarantee the financial sustainability of the BLPK,” the Pensionskasse explained.
Each of the 60 affiliated pension plans in the BLPK now has to decide on whether to accept the cuts or leave the BLPK.
A third option is for a pension plan within the BLPK to offer better rates, but this would mean higher contributions.
The changes only apply to future retirees, as existing pension promises are untouchable under Swiss law.
In 2014, the BLPK came under fire because it had to negotiate a financial top-up from the employers and the canton to fill a CHF2.2bn gap that had amassed over the years.