Swiss pension funds will have to accept negative interest rates on cash holdings or find alternative ways to house liquidity, the Swiss National Bank has warned.
Soon after the SNB cut the peg between the Swiss franc and the euro on 15 January, it also introduced negative interest rates for holding banks’ capital.
A negative rate of 0.75% was introduced on the deposit account balances Swiss banks hold with the SNB, and banks are now passing the cost on to their clients.
In its statement from January, the SNB said it was “lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions”.
However, it also introduced a minimum exemption threshold 20 times the minimum reserve requirements, and each bank has individually set a certain threshold for clients’ accounts, above which negative rates are charged.
Christoph Ryter, president at ASIP, the Swiss pension fund association, said this threshold had been “primarily” introduced to “protect retail clients at least partly” from the negative interest rates.
But he also pointed out to IPE that “the major part of private people’s assets is not in bank accounts but in Pensionskassen”, which must pay for putting liquid assets into bank accounts.
According to a recent survey by Credit Suisse, approximately 6.5% of the assets held by a sample of Swiss Pensionskassen were categorised as “liquid” assets.
Applying this figure to the whole of Switzerland’s mandatory second-pillar system would mean that around CHF45.5bn (€37.2bn) is currently held in cash or similar instruments.
ASIP recently called for an exemption for Pensionskassen and recommended they be granted accounts at 0% interest with the SNB.
Over the weekend, however, SNB president Thomas Jordan told a local radio station that this was “out of the question”.
He said the measure of introducing a negative interest rate “can only work if there is no possibility of side-stepping it”.
Jordan added that “allowing all participants in the financial market to have a zero-interest account with us would weaken the measure”.
Publica, the pension fund for federal employees, already has a special arrangement with the SNB for an account with a minimum 0% interest rate.
In its petition to the SNB, ASIP had argued that all Pensionskassen should have the same opportunity, particularly given the fact they are non-profit financial market participants, unlike banks.
Ryter said ASIP was disappointed by Jordan’s rejection of its proposal.
He said that, while buffers help Pensionskassen to deal with the losses suffered in the wake of the SNB’s shock decision to cut the peg to the euro, persistently low interest rates meant pension funds’ return prospects were “very limited”.
He said this, in turn, would put more pressure on reforms such as the Altersvorsorge 2020 package.
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